Tomorrow will mark the beginning of the end to the stamp duty holiday. Right now, the duty has to be paid only for the amount paid over £500,000 for a property. Come 1 July, however, and this amount will be halved, so buyers will have to pay a higher amount of stamp duty.
This could begin to dent the real estate market that has been on fire since last year. House prices have touched all-time highs as buyers rushed to take advantage of the relaxation. However, because it is not a sudden stop but a gradual withdrawal, the impact on the property market may be gradual.
Real estate is supported
It is also possible that the impact will be partly negated as the economy starts booming later in the year. It is yet to bounce back like the forecasters predict. But especially as the last bit of the lockdown ends next month, I reckon that the UK economy could start seeing higher growth. Since higher growth often goes hand-in-hand with rising incomes, residential real estate can remain coveted. Besides this, UK’s households have saved more of their incomes than ever before, which has put them in a good place to plan for potentially big purchases.
Also, other supportive policy measures are still in place. For instance, the mortgage guarantee scheme is open until December 2022. The scheme allows first-time home buyers to access loans even with a deposit of 5% of the house value.
Moreover, interest rates are abysmally low. The Bank of England recently decided to keep interest rates unchanged at a low of 0.1% even though inflation has started inching up. Moreover, I think it is good news for property markets that the central bank does not think that the risk of inflation will be high over time, so we can expect interest rates to remain low. Of course individual banks can raise home loan rates, at their discretion. But in general, a low interest rate regime is positive for credit growth.
Strong performance by FTSE 100 property companies
Following from this, I am fairly confident that real estate stocks will be able to ride out any short-term fluctuations with relative ease. This is especially so since FTSE 100 house builders have reported strong demand recently.
I do have two concerns about the property markets, however. They will stay buoyant only if the promised economic growth plays out. If a continued pandemic keeps delaying it or if the post-pandemic state of the economy turns out to be worse than we imagine right now, the property market could take a nosedive.
There is little to suggest that will happen, however. It is more likely that property prices will see some softening in the near term. This could be an opportunity to buy as their share prices have risen quite a bit over the past year. But whether I buy during a dip or not, I reckon real estate stocks can make gains in the medium to long term.
