Budget Pre-Announcements
Housing Market Support
The Crash That Never Happened
The two major housing announcements in the 2021 Budget were not a surprise given the earlier leaks but the most important message from the Chancellor on housing remained unstated but clear. This was a budget to support the housing market and avoid the previously widely predicted housing market crash.
Budget Pre-Announcements
The 2021 Budget contained the two significant pre-announcements but little else on housing. Both the stamp duty holiday extension and the mortgage guarantee scheme were well-known when the Chancellor stood up to make his speech on Wednesday but there were some additional details.
The stamp duty holiday was extended until the end of June, when the nil rate band will be reduced from £500k to £250k. First time buyer relief will also return at this point. The nil rate band will then continue at this level until the end of September when it returns to the pre-holiday level of £125k. This tapering approach should help avoid some of the cliff edge effects normally seen at the end of stamp duty holidays but they could still be significant. It was perhaps surprising that the holiday continues to apply to all buyers including investors and 2nd home buyers.
The mortgage guarantee scheme is, as expected, a repeat of the original Help to Buy scheme launched in 2013. It is intended to “increase the appetite of mortgage lenders for high loan-to-value lending to creditworthy customers” by offering lenders partial compensation in the event of a foreclosure. The scheme should help fix the credit crunch that has been affecting higher loan-to-value mortgages since the beginning of the pandemic. However, it is unlikely to solve (and may make worse) the longer-term issues that limit the number of people able to access home-ownership, namely the unaffordability of housing relative to incomes and the impact of financial regulation following the credit crunch. Our October 2020 report looked at high loan-to-value mortgage lending.
Housing Market Support
At first glance, the two announcements look like they’re helping people in the housing market and many will undoubtedly benefit. The stamp duty holiday will help home movers and investors while the mortgage guarantee scheme will help first-time buyers. However, the main beneficiary from the Budget announcements is the housing market itself. The two demand side schemes are designed to support transactions and house prices with the guarantee scheme also reassuring mortgage lenders thanks to the government taking a stake in the market. Ultimately, the Budget announcements are an attempt to support the housing market and ensure the previously widely predicted crash doesn’t happen. Meanwhile, the clear support for the transactional market was counterbalanced by a disappointing lack of announcements to help those people excluded from the housing market, including renters under threat of eviction and homeowners struggling with cladding costs.
The Crash That Never Happened
When the scale of the pandemic’s economic fallout became clear last year, there were widespread forecasts of a housing market crash. However, significant support from the government and lenders helped avoid a crash in 2020. The outlook for 2021 had been looking highly uncertain, with a continued boom and race for space offset by various cliff edges, rising unemployment, and falling city-centre rents. These risks remain but the Budget announcements make it much more likely that house prices will rise rather than fall this year. This is especially the case given the younger and lower income people worst affected by the economic fallout will have limited direct impact on transactions and house prices this year unless their rent arrears force landlords to sell up. Meanwhile, the OBR have revised away their forecast for a house price crash this year to a small fall in prices in the middle of 2022.
