William John Market Report 26-05-21
William John assesses house price growth across the U.K. since the breakout of the COVID-19 pandemic.
William John, house prices, U.K., COVID-19, Financial markets, FTSE 100, William John Capital Bonds, William John Holdings Ltd,
2010
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William John Market Report 26-05-21

William John Market Report 26-05-21

Category: Reports

As the world reels from a COVID-19 induced recession, U.K. house prices have climbed to their highest level across the U.K. since October 2014, according to statistics released by the Office for National Statistics. 

The early slump in the graph exhibits the propagational effects of the Financial Crisis from 2006 -2009 and the subsequent “credit crunch” on mortgages, house prices and the macroeconomy. Disregarding other cycles that follow that period, a recent surge in the growth of house prices can be noted from approximately June 2020. In fact, the period 05/20 through to 02/21 saw compounded house price growth of 46.1%. 

To put this into perspective, investing in a market portfolio of the FTSE 100 from 04/05/20 to 01/02/21 would have yielded just 13.09%:

This raises the question as to why house prices have boomed to such a degree given a historical track record of house prices sinking during recessionary economic cycles. There are two possible explanations. 

Firstly, the pandemic may have caused house buyers to reassess their housing preferences. A move away from offices, furloughing and multiple national lockdowns has provoked a nationwide shift in house preferences from high density residential areas to “suburbia” or low-density residential areas. This has been reflected in the ONS’s House Price Index Data, with a surge in the price of detached properties increasing by 9.1% in the year to February 2021 compared to flats and maisonettes increasing by 6.7% in the same period. 

Secondly, on 08/07/20 the Chancellor of the Exchequer announced a suspension of tax paid on property purchases in the U.K. Properties up to the value of £500,000 incur no tax whilst thresholds in Scotland and Wales were £250,000. The reality is this may have provoked sellers to demand higher prices as buyer’s overall costs were reduced from the tax relief. 

Apart from Scotland, the tax holidays across the U.K have been extended until at least the end of June. Given the strength of the returns of real estate, a short window remains for sellers to capitalise on current market sentiment whilst buyers may withhold purchases at such high prices, slowing down the growth until the eventual decline in house prices when the tax holiday ends. 

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.