The pandemic has affected all of our lives personally, professionally and financially. Inevitably, there have been winners and losers, and it will depend very much on your viewpoint, which ones are seen as beneficial. For instance, the UK housing market witnessed a huge increase in demand, which naturally saw a rise in prices, with values rising by 13.4% since June 2020; the highest increase in 16 years, with experts expecting the trend to continue.
The impact of lockdown and furlough
Of course, there is a need to keep things in perspective; between March 2020 and June 2020, the UK was in the first lockdown, and house prices during this period were unusually low. However, with many people being “furloughed” and unable to spend their disposable income, some saw it as an opportunity to spending their way out of the emotional lows of lockdown.
COVID-19 also changes people’s outlook on life, realising that many things that were previously taken for granted can quickly be taken away. As such, they wanted to move closer to loved ones or something they enjoyed, such as the beach or woodland. The trend of wanting a change of environment or scenery, for whatever reason, fuelled a dramatic increase in the number of people looking to move house.
Government support and incentives
In June 2020, the UK was teetering on the edge of entering a full-blown recession and the British Chancellor, Rishi Sunak, appreciated that a stimulus was required to bolster the economy. Accordingly, a series of measures was introduced, with a tax break on Stamp Duty for properties. Under the scheme, which ended in June 2021, the first £500,000 ($693.250) of any property purchase in England or Northern Ireland was exempt from Stamp Duty, with this reduced to £250,000 until September 2021.
The tax breaks allowed buyers to purchase previously unaffordable properties due to the additional tax, which could run into tens of thousands of pounds. However, one of the UK’s leading mortgage lenders predicts that the trend will continue with consumer confidence high and interest rates remaining low even after the tax breaks have finished. When this is coupled with the building of new properties that has slowed dramatically during the pandemic, supply is low, resulting in a natural increase in prices.
The Bank of England monitoring the effects
As house prices rise, it will have an indirect impact on the rest of the UK economy, and the Bank of England will monitor its effect on inflation. But, as yet, there has been no knee-jerk reaction with interest rates remaining at 0.1% and the planned purchase of £895 billion of UK Government bonds also continuing.
The British economy has fared better than most, thanks to the success of their vaccination roll-out program, but the BoE is still urging caution, stating it intended to “lean strongly against downside risks to the outlook”.
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