Published : 4 years ago, on 20/08/2020

By Paresh Raja, CEO of Market Financial Solutions   

Totalling a massive £1,662 billion, the UK property market represents a significant portion of the UK’s economy. As such, many of the British Government’s efforts to help facilitate a post-COVID-19 economic revival have been focused on stimulating activity in this vital sector.

With buyers and investors discouraged from moving property during lockdown, releasing pent-up buyer demand is crucial for supporting a return to pre-pandemic levels of economic growth in the UK.

The stamp duty land tax holiday (SDLT), exempting the first £500,000 of all property purchases in England and Northern Ireland from the tax until the 31^st March, is by far the greatest market intervention to this end. Estimated to cut the average SDLT bill by £4,500, and some by as much as £15,000, the government hopes that these comparative discounts will be enough to attract buyers back to British real estate once again.

And so far, it seems the policy has been a demonstratable success. Property listing site Rightmove’s August house price index (HPI) revealed the highest level of market activity in a decade, and Halifax’s July HPI showed a 3.8% annual growth in house prices following the policy’s implementation.

Needless to say, these are both extremely positive indications of market growth. However, for this level of market activity to continue, it’s important to recognise the effects of COVID-19 on the lending market and, specifically, how lingering uncertainty may hinder many prospective buyers in acquiring the necessary financing to complete on property transactions.

We are yet to witness the full potential of the SDLT holiday

For the full potential of the SDLT holiday to be realised, the real estate sector must rectify the continued reluctance of mainstream lenders to actively participate in the resurgence of the UK’s real estate market.

After initially withdrawing from the lending market en-masse back in March, mainstream lenders have struggled to reconcile the unprecedented levels of uncertainty associated with a global pandemic with their traditional application review processes.

Paresh Raja

During lockdown, this meant that all new applications were frozen, and already-agreed-upon mortgages were severely delayed in their deployment. For those caught in the middle of a transaction, this proved disastrous – and many property chains came close to collapsing as a result.

To fill this gap in the market, specialist finance providers stepped up to support those still seeking to close on transactions during lockdown. With traditional lenders taking their mortgage products off the shelves; the speed, agility and flexibility of specialist lenders meant those who wished to still finalise sales during lockdown could still do so. While transaction numbers were at an all-time-low during the lockdown period, many of the few transactions that were completed on relied on the deployment of bridging loans.

Although the mainstream lenders are now returning their products to the market, their inability to adjust their review practices to the current environment mean many applicants are being rejected through no fault of their own. Multiple reports indicate that, in a bid to reduce their risk exposure, traditional lenders are refusing to accept applicants who participated in the COVID-19 mortgage repayment holiday scheme in March. Given the multiple assurances at the time that partaking in this scheme wouldn’t adversely affect one’s credit score – this represents a real failure within the lending market.

Just like after the global financial crisis (GFC), innovative financial solutions and creative thinking is now needed to support a strong economic resurgence. The specialist finance industry began in the wake of the GFC to support activity in the real estate sector, and I firmly believe it is needed to heed this call once again to fulfil the full potential of the SDLT holiday.

Therefore, it is paramount that investors, brokers and buyers of all kinds are fully aware of all the financing options available to them. Failure to appreciate the variety of mortgage products on the market may leave prospective buyers at a loss when their mortgage deployment is delayed.

If buyers fail to understand the breadth of lending services that currently exist, I fear the UK will only witness a small fraction of the potential market activity the stamp duty land tax holiday could facilitate.