Moving pieces - how Covid-19 has shifted housing market dynamics

In our latest Household Finance Review we look at the trends in consumer borrowing and spending in Q1 2021. Despite entering a second national lockdown at the time, we have seen a mood of increasing optimism gathering pace with the early successes of the vaccination programme and the announced gradual easing of social distancing restrictions. This optimism has been reflected in many sectors of the economy, but the housing market is perhaps one of the most prominent.

Ever since the housing market was reopened last summer following the first lockdown, we have seen a remarkable recovery in demand. Some level of immediate bounce back was fully expected as many purchases which were put on hold during lockdown could now complete. However, the strength and longevity of the recovery has surpassed expectations, helped in part by the stamp duty holiday.

Although all sectors of homebuying have seen a significant boost, the most striking trend is the strength in homemover activity. This has continued unabated, and in fact accelerated in the first quarter of 2021. The latest data for March 2021 show there were 142 per cent more completed loans for homemover purchases than one year previously, just before the country went into lockdown (Chart 1). 

This follows a long period, dating back over a decade since the previous market downturn, during which homemover activity has remained at historically subdued levels while by 2018 loans to first-time buyers had recovered to levels seen prior to the global financial crisis. 

Chart 1: Mortgage applications and completions, three-month moving average, year-on-year change

Source: UK Finance

Although the stamp duty holiday disproportionately benefits movers (as most first-time buyers were already exempt under a pre-existing measure), there looks to be a more fundamental shift in behaviour linked to the pandemic.

The ongoing health crisis has brought with it a need for space during lockdowns which existing homeowners, supported by over a decade now of uninterrupted price growth increasing their housing equity stakes, have been well placed to respond to.

We have seen very strong growth in homemover numbers across the entire country, but most significantly in the areas surrounding London (Chart 2).

Chart 2: Number of new house purchase loans, annual percentage change, Q1 2021

Source: UK Finance

In normal times, homemover activity is constrained by the fact that most people move only within a relatively confined area, with travel to work a major consideration, so the larger equity stakes in areas with higher property prices offer no additional advantage. However, through the crisis we have seen a shift in attitudes. This comes first from households who, in a socially distanced environment, are increasingly prepared to trade proximity to work for space and other desirable attributes. 

However, an equally important factor has been the shift on employers? attitude towards homeworking. More and more employers have adapted their policies, not just to facilitate business through the pandemic but for the long-term, recognising the logistic, business and social benefits from a flexible working environment that is less tethered to physical premises. This increased flexibility has allowed many homeowners, particularly in London and the south east, to leverage their substantial equity stakes and move further afield to areas which pre-Covid-19 would not have been viable commuting options.

London and other cities will always remain important commercial centres, and it remains to be seen whether this mini-exodus is a temporary shift which will revert, once the pandemic and its aftershocks have subsided, to the pre-existing preference for the metropolitan areas.  

However, should it prove more permanent and pervasive, this has the potential to lead to other economic phenomena. This could include some rebalancing of property prices more evenly across the country, as well as a revitalisation of local high streets and wider economies.

More commentary on this and other market developments can be found in our latest Household Finance Review

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