One of the few silver linings of the last year has been the resilience of the housing market. Despite predictions of a major slow down or even a crash, the sector has rebounded with a speed that’s surprised us all. 

What consultancy Oxford Economics has called ‘a very peculiar housing boom’ has so far relied on a perfect storm of favourable factors. These include typical home buyers (often middle-aged and financially secure) being less likely to lose their jobs, foreign capital continuing to flow, pent-up demand following the first lockdown, and the stamp duty holiday unveiled by Chancellor Rishi Sunak back in July 2020

This has allowed the UK housing market to remained relatively insulated from the travails of the wider economy. And even post some frankly astonishing figures, such as the Nationwide building society’s October report which revealed an annual price growth rate of 5.8% – the highest in six years. 

However, a central plank of the market’s recovery is set to be removed in just over a month. March will see the end of the stamp duty holiday and, as yet, there are no plans to continue it. So, what does this mean for the market? Can we expect it to remain buoyant? Or are we set for another fall? 

The Case for a Crash 

Unfortunately, we have to start by looking at the worst-case scenario. The sudden removal of a policy that has provided a fuel injection to a flagging market could spark a collapse in house prices.

The problem is that, although the end of stamp duty alone probably isn’t enough to cause a full-scale crash, when combined with other factors it might. The UK has rising unemployment, economic uncertainty, and a falling population in London. And all of these things are also likely to reduce the number of potential homebuyers and put the squeeze on demand.

In particular, the 700,000 people to have left London since the outbreak of the pandemic is a real worry. Many of these people are young, EU nationals who – due to Brexit – aren’t necessarily going to return once COVID-19 is brought under control. These people along with their British-born counterparts (who due to the normalisation of remote working also have less incentive to return) are crucial to London’s rental market. 

Without them, we could see a glut of former buy-to-let properties being put on the market as the renting loses its allure for landlords. This, in turn, would drive prices down across the board.

When you combine this with unemployment and the end of the stamp duty holiday, it suddenly looks like another perfect storm gathering – only this one could crash the market instead of saving it. 

Reasons to be cheerful 


Now, for some reasons to remain upbeat. First, the current Conservative administration has a penchant for last-minute decisions on crucial fiscal policy, especially when there’s public pressure involved. For evidence just look at the U-turns on extending the furlough scheme or free school meals. Even if at the moment an extension of stamp duty exemptions looks unlikely, that might not be the case come March.

Alongside this, although we’re almost going to see some drop-off, many, many things have to go wrong for a full-scale crash. For the market to really be in trouble, we’d need to see home buyers facing severe difficulties paying their mortgages. This typically happens for two reasons: an increase in interest rates or large-scale job losses amongst the middle-aged and middle class. 

With interest rates at record lows, the former is very unlikely. As for unemployment, it is true the UK is facing a crisis. However, thus far, job losses have mostly been confined to hospitality and service sectors, both areas of the economy that typically employ young and disadvantaged people who aren’t likely to purchase a house any time soon. Whatever this says about our society (and it is damning), it at least provides some hope that homebuyers, who typically have excess capital such as savings, might emerge relatively unscathed. 

Finally, while it might not look like pretty right now, would a slowdown leading to a drop in prices be the worst thing for the market long-term? It could offer a way into the lower end of the market for first time buyers and, in time, push demand back upwards a little more fairly. Perhaps a slowdown in 2021, painful though it might be, is the correction the market needs to return to better health in 2022.

For now, we wait to see what the Ides of March bring.