After months of downplaying the prospect of extending the stamp tax holiday for property sales to £ 500,000, UK Chancellor Rishi Sunak ultimately opted for a bold new set of stimulus measures for the UK housing sector in the 2021 budget unveiled earlier this year. month. In addition to the three-month extension of the stamp tax leave, which was originally due to expire on March 31, but will now run through the end of June, followed by an additional three-month exemption on some sales to ensure a “smooth transition to normalcy,” the Chancellor is now also implementing a mortgage guarantee for home loans with a 5% deposit.
Survey results from the Royal Institute of Chartered Surveyors (RICS) indicate that action is not taken immediately. While the housing sector performed well after the lockdowns were lifted last May, pushing the market to a six-year high, UK lenders have almost guaranteed the recovery won’t last long by limiting access to mortgages. Breaking out of the first ban, UK banks cut two- and five-year fixed rate mortgages at 95% lending of value (LTV) from 105 to just 15 – attaching record high redemption fees.
Thus, after a surge in real estate activity after the first two months of isolation, which led to forecasts of real estate recovery in the second half of last year, the decline during the first two months of 2021 demonstrated the need for realistic expectations in the future. economics of the pandemic era. RICS found a 29% decline in buyer inquiries in January and a further (albeit more moderate) 9% decline in February, with surveyors noting that there were fewer properties on the market. In contrast to last year’s post-lockdown optimism, many housing analysts predicted a bearish 2021 prior to Sunak’s latest announcements – even as real estate agents like Savills reacted to the new budget with fresh forecasts of an impending price boom.
First and foremost, the over-impact of Sunak’s interventions on the volatile housing sector points to the important role that the UK government has played in mitigating the impact of the pandemic on home buyers and sellers over the past year. This reality is fueling calls for expanded government action, beyond mortgage schemes and tax holidays, to stabilize the real estate sector and support people trying to get involved, especially in England, where a unique “chain of ownership” transaction structure has survived. many families are in dire financial straits.
As Beth Rudolph from the British Transport Association told EuReporter: “The government should have authorized improvements to the home move process so that transactions did not take an average of 22 weeks. They have everything at hand with [the] regulation of real estate agents, reports of the Commission on the Law of Rent and decisions developed by the Home Purchase and Sale Group created to support the Ministry, but unfortunately there seems to be a conviction in some parts of the government that mandatory regulation is not the answer. We believe that this is exactly what is required because voluntary surrender by solicitors and real estate agents will not go far enough. “
One of the most effective potential measures to support the housing market in the midst of an unpredictable health crisis may be the “Covid Caveats” recommended by real estate professionals after the pandemic disrupted thousands of transactions last year. Given that Covid-19 highlights fundamental flaws in the ownership chain system, could such provisions offer the government a first step towards more fundamental industry reform?
Repeated shocks to buyers and sellers reduce demand
The Chancellor’s pivot to March 31, the deadline for abolishing stamp duty, reflects the government’s shift in thinking about its responsibilities. While the initial hiatus led to an increase in home purchases in the second half of 2020, families attempting to buy in the first weeks of this year faced what the BBC calls a “tax-over-tax race” as the government-driven surge in demand caused delays among surveyors, agents real estate and other real estate professionals. Despite the risk of hundreds of thousands of transactions on the cliff edge and an intense campaign by home buyers and real estate associations to renew the deadline, the Chancellor repeatedly refused to push the deadline back before the renewal was finally part of the deadline. new budget.
The experience of the stamp tax exemption and the experience of home buyers who could lose tens of thousands of pounds if they did not complete their purchases before the expiration date echoed the traumatic experiences of thousands of potential home buyers and sellers caught in the first lockdown. less than a year ago. As a result of the initial isolation of 2020, during which the real estate sector was forcibly closed along with the rest of the economy, a Butterfield poll found that three out of ten potential buyers had received a principle mortgage (MIP). ripped the rug out from under their feet, losing their exchange deposit as a result of the closure that took effect after the exchange of housing contracts.
The unique character of the property market in England, structured on the basis of “chains” linking several transactions together, makes English property buyers and sellers particularly vulnerable to shocks such as Covid. Buyers caught in the middle of a broken chain in which their own buyer can no longer make a purchase are not eligible to refund the deposit they owe to the seller in their further transaction. As one mortgage broker explained Time: “[Deposit] agreements are in principle not legally binding. One might hope that in most cases sellers would show sympathy and release the other party from the contract for little or no cost, but they are not contractually obligated to do so. ”
Covid article standardization to protect both buyers and sellers
Even before the outbreak of the pandemic, the cause of one in five unsuccessful property purchases was a chain break. In 2017, the phenomenon cost homeowners over £ 500 million a year in unreimbursed transfer, appraisal, brokerage and survey costs, and left sellers with properties that were more difficult to sell. Covid-related blockages increased these risks: Butterfield found that more than half of the shoppers surveyed were trapped in the middle as a result of blocking. Four out of ten buyers were forced to abandon a purchase after their offer was accepted.
While ministers face calls to tackle the property chain system, the UK government may well, as an interim measure, standardize and mandate “COVID-19 clauses” developed through collaboration between the Department of Housing, Communities and Local Government and the Purchasing Group. – home sales. While the applicability of such provisions is limited to certain circumstances directly related to the pandemic, the experience of the past year demonstrates its potential beneficial effects on the financial and emotional well-being of thousands of potential home buyers. The sector itself also welcomed this provision, and Beth Rudolph called it “a great idea, very quickly implemented to support the industry and consumers.”
This new clause, developed with government involvement, is still far from binding or universal in real estate contracts, raising the question of whether the government should make efforts to promote or even authorize the use of such clauses before the end of the current crisis. … Grassroots efforts such as the Coronavirus Campaign for Home Buyers and Sellers in the UK (CCR-UK), for example, are calling on Housing Secretary Robert Jenrick and the government to expand “public protection and support” for affected buyers and sellers by making the “Covid” clause “Legally binding and in effect since the first lockdown began in March last year.
Parliamentary action to expand the scope of these articles, or to retroactively extend their protections to thousands of people who have already been impacted by painful (but necessary) public health decisions, may also offer the government a more realistic short-term path to taking concrete action in response to the crisis in real estate – restoring public confidence in the stability of the housing sector and laying the groundwork for broader reforms in the months ahead.
Still, industry leaders like Rudolph warn that the road to long-term reform will go far beyond a pandemic. Among the many issues requiring regulatory changes: no mandate to “advance listing information, including lease, rent and authorization information”, no requirement for buyers to “prove that they can afford property with a certificate. confirmation of the decision of their creditor in principle or source of funds “, as well as for sellers to demonstrate their attitude towards the property” to avoid fraudulent impersonation “, as well as the need to” regulate the activities of real estate agents and digitize the land registry, as with application point of view. and machine-readable documents ”.
If and when the UK addresses these regulatory deficiencies, industry officials insist that “once the proposal is accepted, the parties will be able to transact related transactions in the knowledge that all will pass” – in short, both buyers and sellers will enjoy some degree of confidence. this has been sorely lacking in the market since the start of the pandemic.