How do we assess the state of the market as we approach what could be a crucial Budget?

The March 3 Budget is important in very many respects.

For landlords there is the question of whether Rishi Sunak will follow through with reforms in capital gains tax (CGT), as suggested by the Office for Tax Simplification in a report last year he commissioned from them.

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For the wider market, there is the question of whether the stamp duty reduction he announced last July will be extended, or whether March 31 represents the cut-off that many in the market fear will happen. In truth, it is probably too late for most transactions starting now to get in before the deadline.

Predicting what will happen, particularly from this chancellor, is not easy.

He was definitely going to end the furlough scheme last October and then, before too long, he was not going to end it after all, and it is in place until at least the end of April.

A ray of light was provided by the extension of the current Help to Buy scheme until the end of May, because Covid related delays meant that 16,000 property purchases under the scheme were in danger of falling through.

Time is, however, ticking away on stamp duty and the market is operating on the basis that the reduction will be reversed on April 1. We shall see.

As for CGT, the smart money is that a chancellor who has said his priority in the Budget will be supporting jobs will not go for any immediate tax rises.

Even the fear of a change has, however, forced plenty of people, notably company owners, to take defensive action, and the accountants have been busy.

How has the market been bearing up during this uncertainty?

For once the Halifax and Nationwide house price measures have been singing from the same hymn sheet.

The Halifax reported that prices fell by 0.3% in January and that the annual rate of house-price inflation slipped to still considerable 5.4%.

“There are some early signs that the upturn in the housing market could be running out of steam, with the annual rate of house price inflation cooling to its lowest level since August,” said Russell Galley, Halifax managing director.

“Industry figures for agreed sales remain well above pre-pandemic levels but new instructions to sell have decreased noticeably.”

The Nationwide also reported a 0.3% drop in prices in January, and a fall in the annual rate from 7.3% to 6.4%.

“To a large extent, the slowdown probably reflects a tapering of demand ahead of the end of the stamp duty holiday, which prompted many people considering a house move to bring forward their purchase,” said the Nationwide’s Robert Gardner.

This was also the broad message from the January RICS residential market survey, with net balance of surveyors expecting prices to fall over the next three months as a result of the stamp duty holiday.

It takes different views to make a market, and Rightmove certainly presented a different view, in its (asking) house price index published on February 15.

It reported a 0.5% rise in average asking prices, after three consecutive monthly falls. As in previous lockdowns, Rightmove has been experiencing very strong traffic numbers.

“As well as the current lockdown motivating buyer demand again, the restrictions have also been a factor in limiting new supply, leading to some modest upwards price pressure,” said Tim Bannister of Rightmove.

“These are strong signs that new buyer demand is not facing a cliff-edge after the 31st of March.”

“It remains to be seen if this momentum will be enough to make up for the removal of the stamp duty savings that are benefiting many buyers.”

That is indeed the big question.

Knight Frank, in its latest residential market outlook suggests that the stamp duty reduction has had a “supporting” rather than a “central role” in the market.

Though it sees some short-term downward pressure on prices in the spring, it does not expect a major price shock as a result of the end of the furlough scheme.

Meanwhile, the easing of restrictions as a result of the vaccine programme will boost buyer demand.

Knight Frank reckons that this will even out into a flat market as far as prices are concerned for the rest of the year.

I would hope to see something a little better than that.

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David Smith
David Smith has been Economics Editor of The Sunday Times since 1989. He is also chief leader-writer, assistant editor and policy adviser. David is the author of several books, including Free Lunch: Easily Digestible Economics; and Something Will Turn Up: Britain’s Economy Past, Present and Future. He is a visiting professor at Cardiff and Nottingham Universities and has won a number of awards including the Harold Wincott Senior Financial Journalist of the Year Award, the 2013 Economics Commentator of the Year Award and the 2014 Business Journalist of the Year Award in the London Press Awards.

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