Coronavirus and house prices: how the pandemic broke the UK property market
Treasury braced to take major hit as house prices tumble and sales dry up
The Treasury is set to lose almost £5bn in stamp duty as the coronavirus triggers a dramatic fall in property sales and prices, a leading estate agent has warned.
Savills is predicting that revenues from the tax will drop by between £4.78bn and £3.47bn this year - a fall of between 40% and 56%.
The projection comes a week after the government effectively froze the UK’s property market, which “had already been grinding to a halt as viewings and surveys were cancelled”, says The Times.
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How the pandemic derailed the market
Following the December general election, and the resulting greater certainty on Brexit, confidence in the housing market had increased.
Data published by Rightmove in mid March showed that average UK asking prices had risen by 3.5% year-on-year to an all-time high of £312,625. And a report published in February by Zoopla said the UK housing market had enjoyed its strongest January and February for four years.
But according to Sohail Rashid, chief executive of property tracking website View My Chain, that growth looks set to be wiped out as the coronavirus crisis takes its toll.
Rashid told The Times that 10,197 fewer properties were listed for sale in the first week of social distancing (from 23 March) compared with the 2019 weekly average.
As the market shuddered to a near halt, 5,072 fewer house sales were agreed and 2,078 sales that had been agreed previously fell through.
With demand for housing likely to continue falling in the coming months, Lucian Cook, head of residential research at Savills, has calculated that in a worst-case scenario, “a predicted 1.06 million house sales in 2020 will fall to 495,500” - with prices dropping by 10%, reports The Times.
This price drop projection tallies with that made by Ray Boulger, senior technical manager at mortgage brokers John Charcol, who predicted last week that house prices “are likely to fall 10% over the rest of this year because of the virus crisis”, says industry news site Estate Agent Today.
Some predictions are far more pessimistic, with financial services group Jefferies suggesting that house prices could fall by 20%, knocking £46,900 off average prices, reports This is Money.
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And the impact on the Treasury?
As homeowners see the values of their properties falling as the market stalls, the impact will be felt at Whitehall.
The Times reports that Lucian Cook, head of residential research at Savills, has estimated that even in a best-case scenario, the number of UK house sales in 2020 will drop to 652,634 and prices fall by 5%, leading to a £3.47bn drop in tax revenues.
As the newspaper notes, during the financial crash of 2008, “property transactions fell by 57% and prices by 19%, and it took until the middle of 2014 for transactions to recover”.
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