How much has the “race for space” boosted transaction levels?

Overall transactions averaged 1,196,000 a year between 2017 and 2019. They rose to 1,552,000 in the year to September 2021, fuelled by three significant monthly spikes as buyers sought to complete purchases prior to various stamp duty holiday deadlines. As has been well documented, upsizers drove much of that boost in activity, as they looked for more space inside and outside the home.

However, we have seen an increase in activity across all buyer types. That includes first-time buyers, despite the growing challenge of raising a deposit to let them access competitive mortgage finance. It also includes buy-to-let investors who face an ever-increasing regulatory burden.

What has been the increase in transactions by buyer type in the year to June 2021 (v 2017-2019)?

• Mortgaged first-time buyers +13%
• Mortgaged home movers +31%
• Buy-to-let investors +31%
• Cash buyers +22%
  
  

What has happened since the stamp duty holiday ended in September and what does that tell us about what happens next?

Data from TwentyCi shows the number of agreed sales is still higher than in a normal market, while this number has eased back since the end of May. This is particularly true for higher price bands. That suggests the reprioritisation of housing needs will continue to support higher than normal housing transactions into next year. In certain parts of the market, this will be tempered by a lack of stock.

How is the make-up of transactions expected to change over the next five years?

Even as transaction levels return to their pre-pandemic norm, we expect their composition to change. Some of the increased propensity to trade up the housing ladder is likely to stick as people work from home more often. There is also the prospect that flat owners who have been unable to move because of cladding issues will return to the market over our forecast period.

The outlook for first-time buyer numbers is less certain. In England, Help to Buy has supported 12% of mortgaged first time buyer purchases in the past five years. But it is due to come to an end in April 2023. And despite various efforts to increase the availability of higher loan-to-value mortgages (to reduce first-time buyer deposit requirements), nothing has been proposed anywhere near the scale of Help to Buy. This will increase reliance on the Bank of Mum and Dad, which we expect to fund more than 40% of first time buyer purchases over the next three years.

That is likely to place further pressure on the private rented sector and support demand for the growing institutional investment in that area.

By contrast, as interest rates rise, we expect to see further pressure on mortgaged buy-to-let landlords. This will compound as those landlords face the cost of renovating their properties to meet rising energy efficiency standards.

And what about cash buyers?

Since the financial crisis, cash buyers have played an important role in the market, both as investors and owner-occupiers. The buoyant market conditions since June 2020 have presented an opportunity for downsizers to unlock some of the equity tied up in their existing homes. For many, however, the lack of a suitable home to downsize to is the main barrier to moving. This said, we have seen a significant increase in interest in developing housing for older people, which is likely to open up more activity among this group.

Transaction levels by buyer type