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The stamp duty holiday ending in March could cause a property market wobble but investors should focus on the longer term
Thursday 21 Jan 2021 Author: Daniel Coatsworth

Investors in housebuilders, estate agents and other property-related companies are not panicking about signs of a slowdown in the UK housing market despite new data showing more cracks.

This would suggest investors are taking a longer-term view rather than worrying about short-term blips which is a healthy approach.

The broader property sector faces a big test at the end of March when the stamp duty holiday comes to an end. Since July 2020, homebuyers haven’t had to pay any stamp duty on properties worth up to £500,000, saving them a considerable amount of money. This has provided support for the property market and driven activity during the pandemic.

We’re now at the point where any new transactions are unlikely to qualify for the stamp duty relief because it is currently taking about four months to complete a purchase. That hasn’t stopped people from trying as there is still a lot of interest in moving home, but the closer we get to the 31 March deadline the greater the risk of the property market experiencing a pullback.

In fact, Rightmove’s house price index for January shows average selling prices fell for the third month in a row, albeit each month only dipped by less than 1%.

There are growing calls to extend the stamp duty relief period. After all, the strength of the property market is one of the Government’s good news stories and it will want to preserve this status.

Even if the stamp duty rules revert to their previous form, there are still good reasons to remain optimistic about the property market longer term.

A lot of people will have saved money since lockdown conditions first began in March 2020. Even though the restrictions of movement may have been frustrating they could have given many people the chance to squirrel away cash and put them in a stronger position to afford a home deposit.

You must also consider many people will have been stuck in tiny flats or house shares, another key driver for looking for more spacious accommodation, particularly if you take the view that partial working from home could be here to stay.

We see plenty of reasons to stay positive on housebuilders, estate agents, builders’ merchants and DIY sellers. The latter have been beneficiaries of lockdown as the more time people spend at home, the more they are thinking about making alterations to their house or flat.

A lot of people will be waiting until Spring to do work on their home when the daylight hours are longer and the weather hopefully nicer to tackle  jobs outside.

Estate agents should be classic reopening plays – more freedom to view properties will be a tailwind to their business.

Housebuilders are in strong financial shape and are investing in new land to create future value. While there have been some issues with building material shortages, generally they are doing well. For example, a fortnight ago Barratt Developments (BDEV) raised its sales forecasts.

Property market activity levels might ease back from the stamp duty-inspired rally but taking a longer-term perspective on the sector would suggest there are still plenty of reasons to be invested.

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