Specialist finance is the only way to reignite the property market

By Paresh Raja, CEO of Market Financial Solutions

Totalling £1,662 billion, it’s hard to understate the sheer size of the UK’s real estate market. It is a vital component of British economic growth and productivity: this means that any attempt by the Government to instigate a post-pandemic recovery must include stimulating investment into the property sector.

Although real estate was one of the first beneficiaries from the relaxing of social distancing, allowing buyers and sellers to move home once again, virus uncertainty still weighs heavily on the minds of potential buyers. The Government has recognised this; and has begun implementing incentives to get the housing market back to its pre-pandemic levels of activity to fuel a post-pandemic market recovery.

The most important of these measures is undoubtedly the new Stamp Duty Land Tax (SDLT) holiday, applicable to all property transactions in England and Northern Ireland until March 31st, 2021. Nine out of ten buyers will now be exempt from paying this additional tax, saving an average of £4,500 on each individual transaction, according to Government estimates.

So far, it has been a measured success. Property listing site Rightmove reported a massive 75% year-on-year increase in the two weeks following this tax break’s introduction, and a price increase of 2.4% for the new properties being listed. Figures from Nationwide’s July HPI showed an annual 1.5% increase in average house prices, compared to a decline of 0.1% in June. This rise was attributed to the tax holiday introduced earlier in that month.

Given the importance of house prices as an indicator of property sector health, this is all extremely welcome news. However, the extent in which these bolstered enquiry numbers actually translate to an increase in transactions remains to be seen. The important factor to consider here, is whether the access to finance exists for prospective buyers to actually take advantage of the comparative discounts on offer through the SDLT holiday.

Unleashing the full potential of the holiday

This attempt by the Government to stimulate property market activity will only bring limited success if buyers struggle to access the correct type of financing needed to complete on transactions.

When lockdown was first imposed, traditional lenders retreated from the market en masse and withdrew many of their mortgage products from the shelves. Whilst understandable, given the unprecedented levels of uncertainty the lockdown instigated, this meant that those caught in the middle of a transaction suddenly found themselves without the cash needed to finalise their sales. As a result, many property chains collapsed, and deposits were lost.

Paresh Raja
Paresh Raja

With new applications frozen and the deployment of mortgages halted, buyers and their brokers had to turn to specialist finance providers to meet their financing needs. Having previously established themselves as alternatives to traditional lenders who emphasised speed, flexibility and tailoring loans to the need of the applicant, they were perfectly placed to fill in the gap left by the retreat of mainstream mortgage providers.

Although the previously vacated lenders are now returning to the market, not much has changed regarding the accessibility of mortgage products for buyers. The economic risks associated with COVID-19 are still very much present, with traditional lenders only deploying loans to the safest of applicants in order to minimize their risk exposure.

In fact, there have been numerous reports of lenders refusing applicants due to their previous participation in the COVID-19 loan repayment holiday scheme. Despite government assurances that taking part in this scheme would not impact one’s credit score, lenders have been hesitant to allow those involved in this scheme to take on more debt.

So, for those seeking to utilise the benefits of this new SDLT holiday, specialist finance could be a viable option. Just as we witnessed in the years following the global financial crisis; when traditional lenders fail, creative solutions are needed to keep the property market afloat and stimulate the investment needed for a proper economic recovery.

It is imperative to the UK’s post-pandemic recovery that the full potential of this new SDLT tax break is utilised. To achieve this, investors, buyers and their brokers must understand and appreciate the full range of mortgage options available in the current climate. When the potential benefits of the services located just beyond the high street are properly recognised, we should all be able to enjoy the benefits of a property sector beginning on the path to earnest recovery soon.