The number of homes bought and sold in Britain rose by two thirds in September compared to August, with experts believing buyers are seeking to get ahead of a potential rise in mortgage rates.
There were nearly 161,000 property transactions in September on a seasonally-adjusted basis, a 67.5 per cent increase on the previous month, according to latest figures from HMRC.
They also increased by 68 per cent compared to September 2020, and 63 per cent compared to the ‘normal’ market average in September 2017 to 2019.
The cost of a mortgage could be set to increase, if the Bank of England base rate rises
Experts say the sharp rise was only partly a result of the Government’s stamp duty holiday, which has fuelled price growth of around £25,000 in the last year but finally ended on 30 September.
It initially allowed buyers to save up to £15,000 in taxes as they did not need to pay stamp duty on the portion of their property purchase under £500,000.
But in September, the tax break would have had a more subdued effect.
In England and Northern Ireland, it was tapered down between July and September so that buyers could only save £2,500.
And the holiday had already expired in Scotland and Wales, on 31 March and 30 June respectively.
Given that the impact of the stamp duty holiday was lessening, some suggest that other factors have become more important in maintaining high levels of activity in the housing market.
There are a number of things at play, according to Lawrence Bowles, senior research analyst at Savills.
‘There’s more to this activity than a stamp duty holiday: record-low mortgage rates, desire for more space, and a core of unmet pent up demand all continue to push up transaction volumes,’ he says.
Although it is one of several reasons why the housing market remains hot, the desire for a cheap mortgage has become more of a pressing issue for buyers in recent days and weeks.
This is because speculation about a rise in the Bank of England’s base rate has threatened an increase in the current super-low rates.
At the moment, rates are available as low as 0.89 per cent – but they are already rising. At its lowest, the cheapest fixed rate on the market was 0.84 per cent.
Major lenders including NatWest, HSBC and Barclays have all moved to increase rates on some mortgages, after months of sustained falls.
With a base rate rise being predicted by some for December, experts are suggesting that the threat of mortgage rates going up is the ‘new stamp duty holiday’ and that the rush to complete sales before rates rise is now keeping the housing market buoyant.
Simon Bath, chief executive of technology company iPlace Global which created the property advice app Moveable, says: ‘We have reached another crossroads in which following the stamp duty holiday, there is another potential deadline for Brits to prepare for.
‘It seems likely that house prices will continue to rise before demand slows down, as Brits race to obtain lower mortgage rates.’
Rising costs: Those buying homes have seen the typical sale price increase by £5,000 in the last month alone, according to data from the property platform Rightmove
Early statistics back his price rise theory up. According to Rightmove’s latest house price index, which covers the first half of October, the average house price jumped £5,000 compared to the previous month.
In addition, every UK region broke asking price records for the first time since March 2007.
The property portal noted in its report: ‘The continued fast turnover of property for sale and a window of opportunity to buy before a potential interest rate rise seem to have overcome the final expiry of all stamp duty incentives and are keeping activity robust.’
This trend is keeping the market buoyant for now, but could it really lead to another buying frenzy? Iain McKenzie, chief executive of The Guild of Property Professionals, says so.
‘With demand for properties still high, and a potential mortgage rate rise on the horizon, this could be the perfect storm to see another frenzy to buy, so long as the shortage of stock doesn’t continue,’ he says.
There is also the simple fact that people who were trying to meet the September stamp duty deadline, but failed, are unlikely to abandon their purchases, and will continue to add to the totals over the coming months.
But others are less sure about talk of another buying boom. With the base rate rise only tipped to be from 0.1 per cent to 0.25 per cent, the difference in people’s mortgage payments may only be a few pounds per month.
For example, for someone with a £120,000, two-year fixed rate mortgage on a £200,000 home, the difference between a 0.89 per cent rate and a 1.04 per cent rate would be just over £8 a month, or just under £200 across the fixed period.
Office for National Statistics data showing house price increases over the past 15 years
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘People will still move without stamp duty holidays and will continue to refinance their homes, whether mortgage rates are below 1 per cent or around 2 per cent.
‘Borrowers are keen to secure these historically-low mortgage rates but if the right property comes along, they are still likely to buy even if they have to pay say 15 basis points more and won’t qualify for a stamp duty holiday.’
But as the stamp duty holiday proved, the psychological impact of thinking you are saving money can be powerful, even when the actual cash saving is negligible.
While buyers did indeed ‘save’ up to £15,000 in tax, house price rises during the stamp duty holiday were upwards of £20,000, eclipsing the actual saving.
The true impact that the mooted rise in mortgage rates will have depends on myraid factors, including whether there is further clarity on if and when the base rate change might actually happen, and how mortgage lenders continue to respond to the situation.
All eyes will be on the October transaction statistics and house price indices to see whether the market is remaining buoyant.