The latest analysis from property consultancy, Knight Frank, has warned that urgent government stimulus is required to reignite housing market as current data suggest that Covid-19 and the subsequent government lockdown will result in a loss of 526,000 home sales in 2020.
According to Knight Frank, this fall in transaction volumes represents a reduction of 38% on 2019 and poses significant economic implications, according to new research released today by the firm.
Based on the assumption that the current lockdown will remain in place through April and May, with a gradual lifting through June, Knight Frank has forecasted that the knock-on impact of the housing market shut down will also result in 350,000 fewer mortgage approvals in England and Wales this year.
This fall in activity will be multiplied across the economy. Knight Frank’s estimate is a loss of £7.9bn in DIY and renovation spend and £395 million on removals companies. There will be a wider economic impact, including the loss of employment and general mobility. This drop in economic activity will have a huge impact on The Exchequer with the loss of £4.4bn in stamp duty accompanied by a decline of at least £1.6bn in VAT and significant declines in personal and business tax revenue.
Tom Bill, head of London Residential Research at Knight Frank, comments: “Moving house has a clear multiplier effect for the economy. Different-sized businesses in all areas of the economy feel these benefits, which is something the government will take into account when drawing up its post-lockdown stimulus plan.”
In addition, fewer house purchases will lead to a sharp decline in mortgage activity.
Simon Gammon, managing partner, Knight Frank Finance explains that, as a result of the lockdown, lenders are likely to issue almost 350,000 fewer mortgages for house purchase this year than they otherwise would have done. That includes more than 150,000 fewer mortgages to first time buyers, underlining how crucial it is for the whole economy that property industry professionals are able to get back to work as soon as it’s safe to do so.
Gammon said, “It’s become increasingly clear lenders are eager to do business. Two weeks ago many banks retreated to the safety of more conservative lending criteria as they were overwhelmed by calls in the wake of two Bank of England rate cuts and the shut-down of many international call centres. But in recent days we’ve seen the major lenders coming back, raising the loan-to-value ratios they are willing to lend at, eager to gain market share. All they need to get the borrowers moving is a functioning housing market.”
Knight Frank’s five-point plan to reignite the UK’s housing post-Covid:
· Implement a stamp duty holiday
· Extend Help to Buy
· Review the conveyancing process
· Introduce virtual planning meetings
· Offer greater flexibility around planning obligations, S106 and CIL requirements
To ensure the UK’s housing market is kick-started post lockdown; Knight Frank analysts have mapped out a series of critical government-led measures to drive liquidity in the housing market, support the wider economy and boost receipts for exchequer.
Liam Bailey, Global Head of Research said, “Despite the fact the government will forgo a significant amount of stamp duty revenue in 2020, it seems clear there will need to be a stamp duty holiday to actually get the market moving once the lockdown is lifted, but this move alone will not be enough – there will need to be moves across a wider number of areas including an extension to Help to Buy to support first time buyers and support activity across all price bands.”
Since its introduction, Help to Buy has been of critical support to the housebuilding sector, giving developers the confidence to progress projects in what has been, at times, a slower moving market. As such, any moves to extend the scheme will be welcomed, particularly given the anticipated drop in overall transaction volumes over the next few months.
Over the longer term, a review of the conveyancing process will be needed. The process of conveyancing and Land Registry searches are just areas that could be greatly improved and sped up to drive efficiencies. Considerable work has been undertaken by industry bodies covering the legal and property sectors to improve the process, which needs to be supported and removing the reliance on pen and paper and instead focusing on the implementation of blockchain, something the Land Registry has already been trialling.
Oliver Knight, Research Associate at Knight Frank, suggests that measures to help stimulate demand may well fall flat without supply-side support as well.
Knight said, “Initiatives designed to keep the planning system moving have already been made, with the Coronavirus Bill effectively allowing councils to hold virtual planning meetings, but more can be done.
“An extension of time to implement existing and pending planning permissions, given current barriers to developers starting on sites, would be a start, and one that has the backing of the HBF, the trade body for the home building industry. There is also a precedent with the government having granted similar temporary powers between 2009 and 2012 following the financial crisis.
“Greater flexibility should also be encouraged with regards to the payment of planning obligations, such as section 106 and Community Infrastructure Levy (CIL) payments. Such outlays are generally paid up-front and – given expected limited cash-flow over the coming months – a move to allow practical staggering or staged payments would be welcome.”