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What will a no deal Brexit on the horizon, the end of the stamp duty holiday in March, mortgage payment holidays coming to an end, unemployment set to rise after furlough and ongoing on/off coronavirus restrictions do to the Luton property market and the value of your Luton home?

 

In the late spring of 2020, every man and his dog were forecasting impending doom on the British property market. Drops of 10% were considered optimistic as we all held our breath  after lockdown was relaxed. Yet, the property market didn’t listen to the forecasters. UK property values today are 2.5% higher than they were a year ago, and more locally,

 

Luton house prices are only 0.8% lower than a year ago

(and most of that loss occurred at the back of 2019)

 

So, what exactly is going to happen to the Luton property market in 2021?

 

Well, with the end of furlough and 1.7m people still on the furlough scheme at the start of October, a number of economists are saying that unfortunately many of those furloughed will become unemployed. Unemployment currently stands at 4.5% in Q3 2020 (compared to 3.8% in Q3 2019). The Government’s independent Office for Budget Responsibility believes the unemployment rate will peak at 9.7% in early 2021, and then return to pre-coronavirus  levels in 2022. In the past recessions of the early 1980’s, early 1990’s and Credit Crunch of 2009, when unemployment went up, the property market went down.

 

Yet, in this recession, the link between unemployment and property values may not be so direct.

 

So why is the link between unemployment and house prices potentially broken? It comes down to interest rates.

 

The reason Luton house prices have gone up by 425% since the middle of the 1990’s isn’t because the labour market has got so much sturdier, nor that the economy has outperformed every G8 country, or that the UK has had less boom and bust economic cycles than the previous decades. Instead, it’s because of the fundamental and underlying decline in the Bank of England (BoE) interest rates.

 

High BoE interest rates equal high mortgage payments which holds everything back regarding the property market. In the 1980’s, the average BoE interest rate was just over 11%, making mortgage payments very expensive and keeping property prices dampened. In the 1990’s, the average BoE interest rate was a little over 6%, in the 2000’s just over 4%. However, in the 2010’s, it had been a really low 0.5%. Now with interest rates down to 0.1% because of coronavirus and the BoE threatening negative interest rates, there appears little threat of an eruption in mortgage repayment costs.

 

With mortgage payments at an all-time low of just under 30% homeowners' disposable income (compared to 48% in 2007), those middle-aged people lucky enough to still be in a job (who are mainly made up of workers whom are spending a lot more time working from home), they could be more inclined to dedicate more of their monthly income to mortgage payments than they did pre-coronavirus for a bigger garden or a move out of the big cities?

 

So, if unemployment isn’t going to make a huge difference to the Luton property market, what is?

 

Most commentators believe a no deal Brexit will have hardly any short-term effect on the property market (apart from certain upmarket parts of central London).

 

The stamp duty holiday ends at the end of March 2021 and that certainly will reduce the number of Luton people moving (as many moved their plans forward to beat the deadline) meaning there will be less Luton people moving in 2021, yet that will curtail the supply of property for sale and hence keep Luton property prices higher.

 

Next, the Help to Buy scheme, (started in 2013 and where the Government underwrites part of the mortgage for the first time buyer, meaning they can obtain a 95% mortgage) ends in April next year, yet the Tories indicated at their conference last month they would probably create ‘Help to Buy – Part 2’.

 

The bottom line is in the early 1980’s and 1990’s recessions, when interest rates were over 15%, obviously home owners couldn’t afford to keep up the mortgage payments when made redundant or on reduced wages, so many handed in their keys to the bank and homes got repossessed, thus exacerbating the issue with falling property values.

 

However, with interest rates so low, this will not be the case. I envisage that UK property prices will be between 4% to 5% higher by December and Luton values just behind that at 2% to 3% higher, before levelling out in 2021 (although we might see a modest dip in certain sectors and types of Luton homes depending on location and condition).

 

My advice to Luton buy to let landlords is to wait on the subs bench until April 2021. Something tells me there will be some Luton landlords who will be looking to exit the rental market after having their fingers burnt after the eviction ban has been lifted.

 

I also suspect those Luton first time buyers, eager (and able) to break free the rental-rat-race will want to take up the anticipated ‘Help to Buy – Part 2’ scheme, particularly if the BoE base rate stays low. The other winners in 2021 will be low mortgage/equity rich households upsizing to the countryside or leafy suburbs to test out their boss’s promise of ‘flexible-working’.

 

Yet the losers will be the 18yo to 29yo renters … most likely to be made redundant and least likely to buy a home.

 

My advice to the Government for this cohort is to not ignore them once the country is out of this coronavirus situation. It’s all very good keeping the Home Counties Tory voting Baby Boomers happy with green belt policies and other policies to keep their property values higher, yet as the Generation X and Millennials get older and take over as the largest demographic to keep happy (for the polls), the hitherto inconceivable action of the Government levying Capital Gains Tax on your main home may come to fruition.

 

I mean, we have £400bn to pay back because of coronavirus … it has to be repaid and it has to come from somewhere. Those denied real access to buying their own home in the last 10 years, because of massive house price gains over the last 25 years, could vent their anger via the ballot box — if not at the 2024 General Election, maybe in 2029, when they realise that the futile housing policies of both Labour and Tories of the last 23 years have left them with enduring financial diffidence.

 

Maybe we should all look to the grocer’s daughter from Lincolnshire who in 1979 set out a bold vision of home ownership for everybody. Whichever political party truly picks up the batten and reframes it for the current 2020’s generation and comes up with the goods, will be the ultimate winner in this game.

 

Luton homebuyers and Luton landlords purchasing residential property have saved £203,000 since the Chancellor reduced Stamp Duty on 8th July 2020, yet many more Luton homebuyers could miss out.

 

My analysis of properties sold in Luton from the Land Registry between the introduction of the Stamp Duty holiday on 8th July 2020 and 14th August 2020 (which is the most up to date sales data), reveals that many Luton homeowners have saved a considerable amount of money in Stamp Duty. According to my research…

 

since the stamp duty holiday was launched, 62 Luton homeowners have saved on average £3,274 each.

 

That’s a total Luton property value of £16,459,950.

 

Mind you, it’s not all good news as I estimate 136 Luton homebuyers risk missing out on the stamp duty savings (worth as much as £15,000 each) due to solicitors/conveyancers and mortgage lenders struggling with demand and failing to hit the 31st March 2021 deadline.

 

The short-term tax relief, together with the easing of lockdown restrictions, has seen demand for Luton property soar this summer as Luton property buyers race to move home.

 

Chancellor Rishi Sunak introduced a stamp duty holiday in the summer, with the stamp duty holiday due to end on 31st March 2021. Yet, I fear the combined pent-up demand caused by…

 

  • the post Boris Bounce
  • people wanting to leave their metropolitan city centres for homes in the countryside
  • property with gardens
  • property with extra rooms for working from home
  • the stamp duty savings

 

…has created a certain amount of constipation and backlog in the Luton property market.

 

I know 31st March 2021 seems an age away, however nothing could be further from the truth. The average Luton property sale was taking 19 weeks between the offer price being agreed and the keys/monies handed over BEFORE THE POST-LOCKDOWN. So, with as many as 40% to 50% more Luton homeowners in that same sales pipeline of agreeing the offer and the legal and finance to be sorted as we speak, solicitors/conveyancers and mortgage lenders are really struggling with demand for their services, meaning the average time will increase. Hence, I believe as many as…

 

136 Luton people could miss out on the

£445,280 stamp duty tax savings.

 

There is time left to sell and legally complete your Luton property sale before the 31st March stamp duty deadline if you put the property on the market now with a realistic asking price, a decent marketing plan and razor sharp reflexes when it comes to the legal and mortgage work.

 

Yet with 40% to 50% more home movers in the system, those looking to sell their Luton home should be very suspicious of agents being too optimistic on their initial asking price (many estate agents get a commission to put a property on the market, meaning they over-egg the pudding on the suggested asking price to flatter you, only to badger you to reduce the asking price weeks later).

 

Those wasted weeks at an inflated asking price will mean the difference between you securing a buyer and you then buying your next Luton home with or without the Stamp Duty savings, which are up to £15,000 per home move.

 

And whilst many Luton buyers seem ready, willing and able to pay top dollar prices for Luton properties that match their changed post-lockdown home needs, speaking privately to many Luton agents, some Luton homeowners’ price expectations for their Luton homes are now becoming too optimistic, meaning they will undoubtedly lose out.

 

We also can’t forget as many as 1 in 5 mortgage surveys are being down valued by the surveyor, meaning unless all parties are willing to negotiate, the sale falls through and the homeowner has to go back to ‘Square One’.

 

My best piece of advice for those currently sold and in the sales systems with lawyers and mortgage brokers is to speak to your solicitor and mortgage broker every single week and ask if there is anything you need to do to ensure the sale proceeds smoothly and expediently. Also, if you are asked for any information from your solicitor or mortgage broker in between times, drop everything and respond quickly to their request. The odd day here and there will make all the difference.

Boris Johnson has attracted both praise and horror in equal measure with a new plan for 95% mortgages to help beleaguered first time buyers to get on the property ladder, but would that expose UK taxpayers to too much risk? In this article I discuss the implications of what that would mean both nationally and locally in Luton.

 

With the Luton property market taking off due to the stamp duty holiday introduced in the summer, Boris Johnson announced at the recent Tory Conference a plan to offer first time buyers long-term low interest rate 95% mortgages (meaning they would only need to raise a 5% deposit). Yet when someone borrows more than 75%, the banks normally take out insurance in case the buyer defaults and the bank lose money if the property gets repossessed.

 

When the economy is good, the risk is low - so the insurance premiums are also low for the banks – meaning they are happy to lend high percentage loans. Yet, nobody could deny we are entering a period of uncertainty in the coming 12/18 months, meaning the insurance premiums for the banks have gone through the roof.

 

Mortgage companies have avoided riskier high percentage first time buyer mortgages since the start of the Coronavirus predicament. At the end of February 2020, there were just under 400 95% loan-to-value mortgage products accessible for first time buyers, yet today that figure stands at just 26.

 

Another reason for removing the number of 95% mortgages was that the demand for lower percentage loans exploded after lockdown was lifted, and with many mortgage staff still working from home, the banks and building societies focused their attention on getting those (less risky) mortgages sorted first. Therefore, they removed the higher percentage loans from their books, so they weren’t swamped with too much work ... so, one must ask, should the Government take on the risk from mortgage providers in the form of a guarantee from the Government — sparking concern among economists the Government is already burdened with debt – does it need anymore?

 

Yet taxpayers have been funding a similar scheme for years. The Help to Buy scheme, which allows first time buyers to buy a home with a 5% deposit (and the Government guaranteeing between 20% to 40% of the loan) has been in operation since 2013. Taxpayers are already guaranteeing £16.049bn of loans for 224,133 first time buyers, and when we look closer to home locally, since 2013 …

 

425 first time buyers in Luton have used the Help to Buy scheme to help buy their home, relying on the Government to guarantee them on average £48,452

 

That means in Luton alone, £20,592,100 is at risk if those Luton homeowners’ default on those pre-existing Help to Buy Loans … yet the default rate is quite low.

 

So, should the Prime Minister be playing with the housing market? Ought he instead allow open market forces to be applied to the property market, allowing it to find its own normal and leave the mortgage providers to decide on mortgages based on risk, because all the Prime Minister will potentially achieve is a synthetic rise in property values?

 

Some in fact have argued it would be better to spend that

public money on delivering affordable rental properties?

 

However, isn’t it better in the long run for the country as a whole that British people own their home rather than rent because the Government will have rent to pay for those tenants when they retire if they are on the basic (low) state pension?

 

Personally, I don’t disagree with the initiative, yet all I am querying is, what are the Luton first time buyers going to be able to buy? The Luton property market is already quite drawn-out, as ultra-low interest rates have augmented the gap between the first home and the second home, the second home to the third and so on and so forth, so is this initiative fashioning a massive demand that will inflate property prices up the Luton property ladder still further and ultimately lead to even more frustration down the line?

However, could this be the very thing that saves

the Luton property market in 2021?

 

Firstly, with the stamp duty holiday due to finish by the end of March, there are suspicions the property market will stall. And secondly, the very popular Help to Buy scheme mentioned above also finishes at the end of March 2021. This boost instead of fuelling house price inflation could stabilise the property market.

 

In fact, the Government are hoping the property market will help power us out of recession. The early signs are good as the Luton housing market has exploded as a result of the stamp duty holiday introduced in the summer. It certainly needs to as the country’s GDP only grew by 2.1% in August, down from 6.4% in July, 9.1% in June and 2.7% in May.

 

As a country, our GDP is still 9.2% below the levels seen pre-Covid. With the property market doing well, the country remains on course to leave recession in Q3, yet with the impending triple peril of rising unemployment (after furlough), further lockdown restrictions and a messy end to the Brexit transition period does this mean we are potentially in for an interesting ride?

 

Only time will tell if ‘Generation Buy’ will help save the property market, the economy and ultimately Boris? In the meantime, I think it will be a safe bet that people still need homes to live in … and irrespective of what happens to the property market, with that simple fact, the winners in all of this will be Luton buy to let landlords.

 

Tell me your thoughts on this …

Post lockdown, the need for Luton families who want bigger homes has meant Luton homebuyers must now pay considerably more to trade up to that larger home…

 

One thing that has come out of lockdown has been the inexorable movement of Luton households wanting to upsize to a larger home. Often considered to be first time buyer properties, the smaller 1st step on the property ladder one and two bedroom properties are selling quite well, yet demand for those properties on the 2nd and 3rd step rungs on the Luton property ladder (i.e. the three or four bedroom homes) has been even greater.

This demand has been driven by Luton buyers looking for more living space, especially those looking for an area or room to work from home (be that a bedroom, reception room or even an outbuilding converted into a study).

The average asking price of a 3 bed Luton home is £294,500, whilst for a 4 bed Luton home it stands at £410,900

As you can see, quite a jump for an extra bedroom! The heightened contest for 2nd and 3rd step Luton homes for that extra bedroom has pushed demand to a record in October for those looking to take the next step up the ladder. Historically, as a family and its household income grow, the need for more space has permanently been the No.1 reason for moving home, yet now there is a new need for additional space to facilitate people working from home. This means not only do we have growing families wanting larger Luton homes, there are also the people needing the same larger homes for space for a home office. Therefore, looking at the current stats, as you can see, the Luton property market is doing quite well…

55.4% of all 3 bed and 52.4% of all 4 bed homes

in Luton are sold (subject to contract)

 

Roll the clock back to pre-Covid and ask any Luton homeowner who had enough bedrooms for their children if they wanted an additional bedroom, and most homeowners would say that was very much a ‘nice to have’, yet not a ‘must have’. With us all being cooped-up over the spring this year, demand for additional rooms is at a high, with those presently looking for their next larger Luton home are probably going to find that only offers close to (if not sometimes over) the asking price will be accepted.

Even though no properties sold during lockdown, putting the Luton (and UK) property market on hold for many months, many more people buying their next Luton home will have more than made up for it since lockdown was lifted as the portals have stated if the UK property market remains at its existing trajectory, then the number of properties sold YTD by the end of October 2020 will be greater than YTD October 2019.

Yet all these properties sold are causing another issue. Just because a property becomes Sold Subject to Contract (SSTC) doesn’t mean the property is actually “sold”. Before going into Covid, it was taking approximately 19 weeks between agreeing a sale price (and instructing lawyers) to completing the sale. Yet, because we are nationally running at 140% to 150% of properties SSTC (than where we normally are at this time of year), many of my estate agents colleagues are having to manage expectations with buyers and sellers, and tell them that the date they are going to move will take a little longer.

The elephant in the room is that the temporary stamp duty holiday ends on the 31st March 2021

It sounds an age away, yet trust me, nothing could be further from the truth.  Adding an extra month for the additional homes in the bottleneck means even if the sale of your Luton home was agreed today, that would take us to the 3rd week in March ... that’s cutting it very close for the stamp duty holiday.

It is so fundamental for buyers and sellers of Luton homes to work meticulously with their estate agent, solicitor and mortgage lender. For example, there are less staff in the local authorities to do the local searches, bank staff are working from home meaning mortgages are taking much longer to get approved, and conveyancer/solicitors are snowed under with work. Therefore, if you get a document that needs filling in, are asked to provide documents, pay disbursements or questions need answering, do it immediately and without delay. A day here and day there will snowball and could mean you miss the stamp Duty holiday … and that could cost you thousands and thousands of pounds.

The bottom line is that we haven’t seen this sort of pressure on the UK property market since 1987, when dual-MIRAS was abolished. Now, as we are slowly starting to come out of Covid, with many legal and banking staff working remotely or still on furlough, the perfect storm has occurred with unprecedented demand from buyers looking to move post lockdown. The best advice I can give is, as soon as you put your property onto the market, find a solicitor that has the capacity to work with you, then instruct that solicitor to start work immediately to prepare the paperwork, so once you have a buyer, things can move more smoothly and quickly. The last thing you want is to lose out on saving thousands of pounds by missing the stamp duty holiday by a whisker.

The Luton property market is an enigma and chock-full of contradictions.

 

Notwithstanding an economic recession and forecasts of property values dropping, nobody seems to have informed the Luton homeowners selling their homes and those Luton people looking to buy them. As I have discussed in many recent articles on the locality, the Luton property market is booming and property values in some sections of the market are rising, yet amidst enthusiastic reports of gazumping, there are disgruntled and malcontent grumbles about mortgage company surveyors down valuing property on survey.

 

However, before we talk about the banks and surveyors, let’s look at what is happening in the Luton property market now.

 

Land Registry figures published last week showed unyielding evidence for what everyone in the property industry had been saying since the market reopened after a seven-week lockdown on May 13: UK property prices are rising, although

 

The average value of a Luton home dropped by 1.5%

in the year to June to £257,200

 

Many expect the statistics to show more rises following the Stamp Duty Holiday announced in July, which unbridled a burst of buying activity in the Luton property market. In many (not all) sectors some properties have been going for over the asking price whilst some have been going to sealed bids.

 

Some newspapers have even suggested a small minority of homeowners are ‘backdoor-gazumping’, which is genteelly being referred to by estate agents as ‘retuning the asking price’ - as in, the homeowner removing the property from the market, ‘retuning the asking price’ in an upward direction, then placing it back onto the market.

 

Conceivably enthused by these stories, some house sellers and estate agents might be getting a little carried away and placing overambitious asking prices on homes they are selling. Customarily a property with too high an asking price wouldn’t sell - yet some over-enthusiastic Luton buyers are paying over the odds for certain types of properties.

 

So, let’s look at what is happening to the Luton property market (Luton plus 3 miles) by house type and the number of bedrooms…

 

 

 

Number of Luton properties
on the market

...and of those -
how many are Sold STC

% Sold STC
compared to those for sale

Detached House

829

439

53.0%

Semi Det House

1221

735

60.2%

Terraced/Town House

1118

554

49.6%

Apartment

861

334

38.8%

Bungalows

313

197

62.9%

 

And when we look at the number of bedrooms …

 

 

Number of Luton properties
on the market

…and of those -
how many are Sold STC

% sold STC
compared to those for sale

Studio/1 bed

439

175

39.9%

2 beds

1093

564

51.6%

3 beds

1783

988

55.4%

4 beds

794

416

52.4%

5+ beds

264

130

49.2%

 

 

As you can see, the best performing type of property in Luton is the bungalow and the best-selling properties when it comes to bedrooms are 3 beds.

 

These are quite impressive figures for the Luton property market, yet some of the banks are having none of it

 

They are looking apprehensively into 2021 when furlough/the new job support scheme ends, meaning it’s quite tough for all buyers borrowing high percentage mortgages (i.e. more than 80% to 85% of the value of the property in a mortgage). 

 

It is even tougher for self-employed buyers (whose income is less than assured) to get those high percentage mortgages - and finally, the banks are most certainly concerned with high percentage mortgage buyers who pay over-inflated prices for property using the bank’s money… hence the down valuing (Definition of Down valuing : the buyer and seller agree a sale price, then the mortgage is applied for with the buyer’s bank and the bank’s surveyor states the purchase price the buyer is paying is too much).

 

One small note to Luton landlords - I am also hearing that some overzealous Luton buy to let landlords who are over-egging the potential rental figures on their buy-to-let purchase in order to obtain the mortgage, are also being reined in by the banks.

 

 

 

Now this is not a huge issue (e.Surv – a nationwide surveying firm only reported a 4% increase in surveyors having to down value property in Q2 2020 compared to Q1), yet should you be lucky enough to have multiple offers on your home, ask the agent what the overall buying position of the buyers are. You need to specifically ask what percentage loan the buyer is taking on and the position of the buyer in the chain (they have to find this out anyway by law and you have a right to know that information as the property seller if you ask).

 

The bottom line is the highest bidder might not be the best buyer for you. It’s true, average property prices are rising nationally, yet this does not mean you should pay over the odds for your next Luton property.

 

If you would like a chat about any aspect of the Luton property market - please do send me a message or pick up the phone.

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