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UK Approval for Mortgages Highest in 13 Years

UK Approval for Mortgages Highest in 13 Years

The approval rates for mortgages in the UK rose to a record high, last seen 13 years ago. There are a couple of factors that helped increase the activity in the real estate market. The most important is the stamp duty holiday introduced this year to stimulate activity on the real estate market. The holiday will end in March 2021 and this brings into question what will happen to the housing market afterward. Will it crash? Or will it make a smooth transition into calmer waters? There is no exact answer to this question. However, maybe the figures will help you understand the current situation better.

Back when the first lockdown measures were introduced, mortgage borrowing fell to a low not experienced in 300 years. We have to keep in mind that the real estate market is an important driver of UK business and it creates thousands of jobs for citizens. The government needs to stimulate various industries because the COVID-19 pandemic is causing many businesses and even major industries to deteriorate. The chancellor of the exchequer Rishi Sunak chooses to stimulate the real estate market through the so-called stamp duty holiday. In essence, he introduced a law that made all housing purchases below £500,000 free from stamp duty. His measures had the wanted effect and the market boomed with unprecedented vigor. The Bank of England reports that home purchases rose to 105,000 in November 2020. Such an increase was last observed in August 2007, one month before the onset of the financial crisis. Back in April, the borrowing for mortgages was at £200 million and in November it rose to £5.7 bn. The increase in interest brought home prices to new heights. It is estimated that the average increase in property value, for the entire UK, is around £10,177.  That is, since the introduction of the stamp duty holiday the prices rose, on average, by £27.81 per day. The increase in activity brought the wanted effect and the UK real estate market did not crash. Also, the current government made it a priority to ensure all activities related to moving houses, restorations and upgrades remain active during future lockdowns. This was also a driving force behind the real estate boom. This March the stamp duty for houses above £125,000 will return and this leaves many wondering if this will cause a crash.

The main cause of fear is the fact that people may stop buying houses and this will certainly happen. But this will not be an instantaneous halt of activity and purchases. It is far more likely that the real estate market will experience a downturn and then it will stabilise to come to an activity resembling the one before the beginning of the pandemic. The downturn will be a reduction in home purchase and the subsequent decline of housing prices. This is the hard-hit everyone is expecting. Given the fact that this surge in activity was stimulated through a government incentive and it has an end date, surely the crash will not be devastating for the industry. Furthermore, there is an expectation that housing prices will see new growth in 2022. After the world stabilizes and global economies resume with regular production. People have to have in mind how the real estate market will operate in the following months and plan in light of the expected changes. Either use the existing activity for your benefit or wait for the market to stabilize completely if the current situation brings you discomfort because of all the prophesied risk.     

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