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Mortgage market update August 2021

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Strong housing market activity is expected to continue with evidence suggesting the desire to buy remains undiminished. Our Mortgages Managing Director, Richard Rowntree, discusses the key factors behind this predicted trend.

Given the immense undertaking from the housing industry to enable homebuyers and landlords to complete transactions ahead of the Stamp Duty holiday deadline, it is no surprise that July house purchase figures from HMRC showed a significant month-on-month fall when compared to June.

On the face of it, a 62% dip to 73,740 residential transactions would suggest a market that has run out of steam, but the post pandemic housing market is far more complex than that. Whilst we may have hit the peak in June, there's plenty of evidence to suggest activity will remain strong for some time to come.

The Stamp Duty holiday was a catalyst for action last summer and certainly contributed to driving transactions. It made those who may not have even considered moving to at least ponder the possibility and have a quick look at the property apps.

Landlords certainly used the holiday to their advantage and took the opportunity to lower their transaction costs when adding to their portfolios.

However, there are more fundamental reasons why I'm confident transaction levels will remain strong across the owner-occupier and buy-to-let sectors.

A key factor for me is the desire to buy remains undiminished. People are still seeking something else when it comes to where we live and the 'race for space' is very much a live phenomenon. The pandemic unlocked a generation of home movers and the reasons for that are far more complex than the potential saving of a few thousand pounds on Stamp Duty.

More space, a reassessment of life and greater levels of working from home are just some of the myriad of reasons why housing demand remains high.

Another factor is that money is cheap and mortgage affordability - and availability - has improved considerably since the start of the pandemic. At that time, lenders raised rates to stem business flows as they struggled from an operational perspective and just from the fact that they were dealing with the unknown, but those have now reduced.

The main dampener on transaction levels - but not values - could be the scarcity of stock rather than the lack of demand. Zoopla data shows that sales applicant demand is still 50% higher than in 2018-19 (a more accurate comparison than the disrupted 2020), but supply is down 43% on normal levels.

This is more keenly felt in the market for three or four-bedroom homes than flats and apartments, which chimes with the greater demand for space.

The supply issue is not just constrained to the owner-occupied market; the rental space is experiencing similar levels of stock issues as record levels of tenant demand shows no signs of abating. Zoopla's stats show that lettings applicants are 70% higher than normal levels and the tenant mix is certainly evolving.

Added to the usual summer/early Autumn drivers of the rental market - students, graduates starting their first jobs, people wanting a change after holidays - are those families who may have sold a house and are looking to rent, potentially in a new area, before committing to purchase again.

Stories of sealed bids across the country for good quality family rented homes are growing and many properties are going within hours of being marketed. Landlords have been responding to this trend and we have certainly seen growing levels of applications for semi-detached and detached homes to cater for the family market.

Whilst this is a positive for landlords, the stock shortage is also a challenge for this group and it may be some months yet before we see that normalise.         

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