There’s a quiet, surprising frenzy taking over parts of the property market. Demand is high, supply is low and sellers are in control.
One estate agent reported that a buyer, so frantic to beat the competition, put in an offer 10pc over the asking price on a country house after just one viewing while standing on the property’s front lawn.
Analysis by estate agency Hamptons International found that 30pc of properties sold within the past month were subject to a bidding war from three or more buyers – up five percentage points on last year. This demand is supporting house prices which, according to Halifax, increased by 1.6pc in July. The hunger in the market is underlined by the fact that properties are selling for 98.6pc of asking prices, which Hamptons says is a record high.
But with 730,000 jobs lost in the first four months of the crisis, the furlough scheme that has kept pay packets coming in for 9.5m workers set to unwind in the next couple of months, and the UK now officially in a recession, the economic outlook is dire.
House prices are forecast to fall later this year and into 2021, and ordinarily this would be the worst time to buy. Cautious banks are putting mortgage applicants through extra tests and are very hesitant to lend to first-time buyers with low deposits, fearing a rise in negative equity.
Property market analysts are scratching their heads, having been taken by surprise that wannabe buyers are ignoring the gloomy economic mood music. So what is going on?
The psychological effects of lockdown and the working from home revolution cannot be underestimated. We won’t know for some time whether it sparked a fundamental structural change in the way we live, but this seismic social event will play a large role in medium term choices about how to live.
As a result, much of the housing market is being driven by buyers who have brought forward their plans to move by months or even years. Of course, the stamp duty holiday has acted as a stimulant, and price rises are a result of that. But the market was flying before then due to pent-up demand after lockdown.
A month on from its announcement, demand has been highest for property where buyers can take advantage of the full £15,000 saving, according to Hamptons. The number of applicants registering with agents with a budget of between £500,000 and £750,000 is 92pc higher than last year.
The fact that things are in a kind of stasis – that the bad economic news is being delayed somewhat due to the cushion of the furlough scheme – might have instilled a false sense of security in many. The stamp duty break, which stops at the end of March 2021, has acted as a psychological boost and also created an artificial time limit for buying. These two factors combined has produced a pressure cooker environment that is supercharging the market.
Further, the impetus to move for many people has become almost desperate – despite the job losses and recession that are coming. Stuck in a small property and working from home, many fear being stuck there for another lockdown. Millions are also faced with the prospect of working in their bedroom for the foreseeable.
According to insurer Direct Line, one in seven home workers – some 2.3m million people – believe they will never return to the office, while more than nine million think they will work from home at least some of the time. This desire to move quickly may be more important than potentially buying at the top of the market, just before house prices fall.
One side effect of lockdown has been a widening of the division between the haves and have-nots. Those furloughed or self-employed are being refused lending or have to jump through many more hoops than before. First-time buyers with small deposits are finding it almost impossible to get a mortgage as cautious banks withdraw them from the market.
However, Hamptons reported a 45pc increase in inquiries from first-time buyers compared to the year before – although the economic environment, and lack of mortgage availability, means that may not lead to sales. It was thought that allowing second home buyers and investors to benefit from the stamp duty holiday would cut first-time buyers out of the market, but according to the analysis, demand from those two groups has only increased by 22pc and 28pc respectively.
All of this is taking place while interest rates are at record lows, and those with high levels of equity are practically being begged by banks to take out a loan. Many buyers of high-end homes, like the one who put in an offer on the property’s front lawn, have had a thrifty lockdown, coming out of it better off than they were before.
For these people with stable, Covid-proof jobs, it’s business as usual. The so-called "Boris bounce" that boosted the market after the election last December was abruptly stopped when the market was closed during lockdown. It’s possible to see this current boom as a continuation of that.
Prior to that moment, the market had been sluggish for years, since the Brexit vote, with a severe dearth of property for sale. Some of those taking the plunge now may simply be bored of waiting, wanting to get on with their lives.