End of stamp duty holiday unlikely to stop upward move in prices

A number of factors have helped to boost the property market in recent times, with some experts claiming that it was the stamp duty holiday, introduced at the start of the pandemic, which got things moving.

Friday, 15th October 2021, 2:02 pm

Up until July 1, no stamp duty was payable on purchases up to £500,000, which saved the punter a possible £15,000 – the price of a very good quality kitchen!

So for those buying at the top of the market, the stamp duty holiday was probably a defining factor.

Now that the ‘holiday’ is coming to an end, is it inevitable that the market is going to run out of steam? Well maybe not.

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The stamp duty freeze has ended but what does it mean for the local housing market?

With normal stamp duty rates being re-instated from October 1, the only exemption will be for purchases up to £125,000. From £125,000 to £250,000 there will be a 2% levy, which means that for a house purchase of £250,000, the stamp duty will be £2500.

But £250,000 is well above the average house price in the Derry and Strabane council area which currently stands at £135,000. So for many local buyers the stamp duty is not that punitive.

The good news for first-time buyers is that the zero rate will still continue for properties up to £300,000, which covers the vast majority of first-time house purchases in our local area.

In theory, the temporary suspension of the ‘duty’ was always going to stimulate the market and boost confidence, but other factors have contributed to the upswing.

The return of the 95% mortgage and the prospects of sustained low interest rates have made a definite impact. Also in the mix is the recognition among new groups of buyers, from outside NI, that NI has the ‘affordability’ factor – a clear indication that there is value to be had.

On the sentiment side, the growing realisation that ‘your home can indeed be your castle’ has been the result of many months of lockdown, when homeowners had the time to evaluate their personal needs and preferences.

Home may well be ‘where the heart is’ but for a growing number of working people the home has now become a place to work as well as to live - thanks to Covid -19. All this has played a key part in the recent wave of optimism.

Domestic properties with existing and potential ‘office’ space are in demand. So too are properties that have space in which relatively inexpensive offices can be constructed within site boundaries. This new cultural shift in working behaviour is making an impact on the housing market and shows no sign yet of slowing down. There is plenty of evidence of people returning to Northern Ireland to live, taking full advantage of being able to work remotely in affordable homes, while earning ‘London’ salary levels.

Outdoor space has moved up the pecking order in terms of importance – a sanctuary for many families during the lengthy periods of lockdown and somewhere for the new found ‘office worker’ to stretch his or her legs. Agents are currently placing extra emphasis on the merits of a decent sized garden with some developers actively marketing the concept of work pods/garden rooms to maximise price potential. Properties with decent gardens have sold well and are still selling well in our strange new world. Space is now a ‘deal maker’ in many property transactions.

According to the latest house price survey for the second quarter of 2021 (April – June) carried out by the Northern Ireland Statistics and Research Agency (NISRA), the growth in house prices in the Derry City and Strabane Council area is continuing, with prices up 1.3% on the first quarter of 2021, which in turn was up 3.4% on the fourth quarter of 2020. Prices are also up 6.0% compared to the second quarter of 2020. Such an annual increase is significant.

Compared to 2015, prices have risen 38%. But 2015 was a low baseline figure and unlike most other parts of the UK, Northern Ireland has still not returned to the prices achieved in the dizzy heights of the 2006/7 boom. Back then, the average house price in NI was £225,000.

When the crash came, it was big and it was protracted. Land Registry data shows that by 2013, prices had tumbled 57% with the average price of a home just £97,000. Northern Ireland house prices are still around 30% below 2007 levels but when inflation is taken into account, the financial reality is quite sobering. Anyone who bought a property in 2007 for £200,000 and sold it today for £200,000 would still be out of pocket, because it would have to have risen to £284,000 to have kept pace with general inflation over those fourteen years. For that reason many homeowners are still in negative equity, which partly explains why the bounce in the NI housing market, since the great crash, has been rather subdued - until now.

Confidence appears to be returning. Today’s buyers appreciate that, with NI being one of the cheapest regions for housing in the UK, now may well be an opportune time to purchase - considering how far prices had fallen and how very slow they have been to recover.

The upward trajectory in prices is being further underpinned by demand currently outstripping supply.

At present there is a general problem of supply in NI and especially in the Derry area, where a recent tally showed only 274 properties listed for sale compared to a more typical figure of 800 properties at any one time.

Too many buyers chasing too few houses has inevitable and predictable outcomes.

It is bizarre to think that house prices here are on the rise despite the economic turmoil driven by the pandemic. As government support measures gradually wind down, the momentum in the housing market may indeed lose some of its steam.

But most agents believe that the ‘affordability’ factor, the quality of housing and the benign lending environment makes for a positive outlook.

As one agent put it, “We are exceptionally busy at present, but our main consideration is that we need more houses to meet market demand.”

The stamp duty holiday may have been a big talking point in property transactions across the water, but here in the north-west, where average house prices are a modest £135,000, it is value for money, rather than stamp duty holidays, that will continue to be the main factor in driving our slow but steady recovery.

Estate Agents will be anxiously waiting for NISRA’s next quarterly report in November, covering the three months to the end of September, to see if the recovery is sustained.

The report should also reveal if government support measures have had the desired effect of keeping the property market in business.