After months of downplaying the prospect of an extension of the stamp duty exemption for property sales up to £ 500,000, UK Chancellor Rishi Sunak has finally opted for a bold new package of stimulus measures for the sector British housing in the Budget 2021 unveiled earlier this month. In addition to a three-month extension of the stamp duty exemption, which was originally scheduled to expire on March 31, but now running until the end of June, followed by three additional months of exemptions on certain sales to ensure a “smooth return to normal”, the Chancellor is now also deploying a mortgage guarantee for real estate loans at 5% down payment.
The results of the Royal Institution of Chartered Surveyors (RICS) survey suggest that the measures do not come too soon. Although the housing sector posted strong numbers after the lockdown was lifted last May, pushing the market to a highest in six years, UK lenders have virtually assured that the recovery will not last by restricting access to mortgages. Coming out of the first foreclosure, UK banks cut two- and five-year fixed rate mortgage deals to 95% Loan to Value (LTV) from 105 to just 15 – with record high reimbursement fees attached.
So after a rush for real estate activity followed the first two months of confinement and encouraged predictions a real estate recovery in the second half of last year, a drop off during the first two months of 2021 demonstrated the need for realistic expectations in an economy in the era of the pandemic. RICS has found a 29% decrease buyers’ demands in January and a further (albeit more moderate) drop of 9% in February, as surveyors saw fewer properties on the market. Contrary to last year’s post-containment optimism, many housing market analysts predicted a bearish 2021 ahead of Sunak’s latest announcements – even as realtors like Savills reacted to the new budget with new predictions of the surge in prices to come.
Above all, the disproportionate impact of Sunak’s interventions on an unstable housing sector underscores the important role the UK government has played in mitigating the impact of the pandemic on buyers and sellers during the last year. This reality is fueling calls for broader government action, beyond mortgage regimes and tax exemptions, to stabilize the real estate industry and support individuals trying to participate – especially in England, where the ‘unique structure of the’ chain of ownership ‘transactions has disappeared. many families in financial difficulty.
As Beth Rudolf of the UK Conveyancing Association said EuReporter: “The government should have imposed improvements in the move process so that transactions do not take an average of 22 weeks. They have everything at their fingertips with [the] regulation of real estate agents, reports from the Lease Law Commission and the solutions developed by the home buying and selling group set up to support the ministry, but unfortunately there seems to be a belief in some parts of government that mandatory regulation is not the answer. We believe this is exactly what is needed, as the voluntary delivery of change by lawyers and real estate agents will not go far enough. “
One of the most effective potential measures to strengthen the housing market in the midst of an unpredictable health crisis could be the “”Covid clauserecommended itself by real estate professionals after the pandemic disrupted thousands of transactions last year. With Covid-19 exposing the fundamental flaws in the chain of ownership system, could such clauses offer the government a first step on the path to more fundamental reform of the industry?
Repeated shocks to buyers and sellers dampen demand
The Chancellor’s about-face on the initial March 31 deadline for the stamp duty exemption reflects a change in the government’s vision of its responsibilities. While the initial hiatus resulted in an increase in home purchases in the second half of 2020, families trying to buy in the first few weeks of this year were faced with what the BBC calls “A race to beat the tax deadline” as the government-induced surge in demand has caused delays among surveyors, real estate agents and other real estate professionals. Despite the risk posed to hundreds of thousands of transactions at ‘cliff edge‘, And one intense campaign by homebuyers and real estate associations to get an extension, the Chancellor had repeatedly refused to extend the deadline before the extension was finally part of the new budget.
The experience of the stamp duty exemption and home buyers who risked losing tens of thousands of pounds if they did not complete their purchases before it expired, echoed the traumatic experiences of thousands of buyers and of potential sellers caught in the first foreclosure just less than a year ago. Following the initial 2020 foreclosure, in which the real estate sector was forcibly shut down alongside the rest of the economy, a Butterfield investigation found three out of ten potential buyers who had obtained ‘principle mortgages‘(MIP) had the carpet ripped from under his feet, losing his exchange deposit following the closure that took effect after the exchange of housing contracts.
The unique nature of the UK property market, structured on the basis of ‘chains’ connecting multiple transactions, makes UK buyers and sellers particularly susceptible to the impact of shocks such as the Covid. Buyers who find themselves in the middle of a broken chain, in which their own buyer is no longer able to complete a purchase, are not entitled to recover the deposit they owe the seller in their subsequent transaction. . As one mortgage broker Explain at Time: “[Deposit] agreements in principle are not legally binding. You hope that in most cases the sellers would be sympathetic and release the other party from the contract at little or no cost, but contractually they are not obligated to do so.
Standardize the Covid clause to protect both buyers and sellers
Even before the start of the pandemic, the cause of One out of five property purchase failures was a break in the chain. In 2017, the phenomenon cost owners of over £ 500million per year in unrecovered disposal, appraisal, brokerage and investigation costs, while leaving sellers with more difficult-to-sell properties. Covid-related lockdowns have increased those risks, with Butterfield finding that more than half of buyers surveyed found themselves trapped in the middle of the chain due to the lockdown. At least four in ten buyers were forced to withdraw from their purchase after their offer was accepted.
As ministers face calls to tackle the “chain of ownership” system, an interim measure may well be for the UK government to standardize and mandate “Covid-19 clausedeveloped in collaboration between the Department of Housing, Communities and Local Government and the Home Buying and Selling Group. Although the applicability of such clauses is limited to certain circumstances directly related to the pandemic, the lived experience of the past year demonstrates its potential beneficial impact on the financial and emotional well-being of thousands of potential buyers. The industry itself has also welcomed the clause, with Beth Rudolf calling it “a great idea, delivered very quickly to support industry and consumers”.
This new clause, developed with government input, is still far from being mandatory or universal in real estate contracts, raising the question of whether the government should undertake an effort to promote or even enforce the use of such clauses. until the end of the current crisis. . Grassroots efforts such as the Campaign for Covid Relief for UK Buyers and Sellers (CCR-United Kingdom), for example, urge Housing Secretary Robert Jenrick and the government to extend “public protection and support”To buyers and sellers affected by making the ‘Covid clause’ legally binding and valid from the start of the first confinement last March.
Parliamentary action for broaden the mandate of these clauses, or retroactively extending their protections to the thousands of people who have already been affected by painful (but necessary) public health decisions, could also offer the government a more realistic short-term path to take concrete action in response to the housing crisis – while restoring public confidence in the stability of the housing sector and laying the groundwork for broader reform in the months to come.
Nonetheless, industry leaders such as Rudolf warn that the path to long-term reform will extend far beyond the pandemic. Among the many issues requiring regulatory change: the lack of a mandate for “the initial provision of information upon registration, including lease, rent and authorities information”, the lack of obligation for buyers to “prove that they can afford the property by means of a certificate confirming the decision in principle or source of the funds of their lender” and for sellers to demonstrate their connection to the property “to avoid the seller impersonation fraud, ”and the need“ for real estate agent regulation and the digitization of the land register, both in terms of applications and machine-readable deeds.
If and when the UK addresses these regulatory loopholes, industry representatives insist that ‘once an offer is accepted parties can trade in related transactions knowing that everything will happen. – in short, that buyers and sellers will benefit from a level of certainty. which has been sorely lacking in the market since the start of the pandemic.