Transaction drop off in July doesn’t necessarily tell the whole 2021 tale

Well, now we have the initial data and perhaps some answers to what the rest of the year might look like, albeit with the major caveat that we are just a month away from another partial stamp duty holiday deadline.

The latest statistics, quite obviously, show a sizeable drop-off in transactions and in that regard it’s perhaps not too surprising to to read some media headlines using terms such as ‘tumbling’, ‘plummeting’ ‘cliff edge drop’, etc.

However, as always, this is a picture which needs to be looked at in the round, and given we still have four months to go until the end of the year, it is quite frankly too early to be making conclusions about what the post-stamp duty market might look like. Especially because, as mentioned, we are still in that stamp duty holiday period – at least in England.

So, what do the numbers say? Well, again unsurprisingly, June is going to represent a high watermark for transaction numbers. According to HMRC provisional figures, 198,420 residential transactions took place – indeed throughout 2021 every month has posted over 114,000 transactions with March particularly notable at 183,850 which again is not surprising given that was due to be the original deadline date before the extension.

In July the provisional figures we have see transaction numbers at 73,740 which has led to the media hyperbole about the overall impact of the holiday in terms of that ‘cliff edge’. However, I would not be surprised to see both August, and particularly, September, significantly improve on those figures as purchasers seek to at least make some kind of stamp duty saving.

This will, most probably, be followed by slower months in the final quarter of the year, although it’s too early to say what they might look like. However, what we cannot disagree with is the boost that the stamp duty holiday gave to the housing market.

For instance, in the seven months of 2021 so far, 955,720 transactions have taken place. That is not a million miles away from the total number of transactions for the entire year in 2020 (1,039,260) or 2019 (1,176,870) or 2018 (1,189,390).

I think it’s safe to assume that 2021 figures will surpass all of those totals and may well add fuel to the fire for those who are looking for such stamp duty holidays to be made permanent, because there is a clear benefit to the wider economy in having residential transactions pushing way past 1.2 million-plus every year. You would have to go back to 2017 to see that number surpassed and back to 2005/6/7 to have years where the number of transactions went past 1.4 million.

As mentioned, what we have witnessed in 2021 are transaction numbers regularly breaching the 100,000 barrier each and every month. And then we come to July (and most likely August) before we again might see that number achieved in September. Is this a cliff-edge?

Well, if it is, it’s not a very big drop on ‘average’ months – in fact there were more transactions in this July compared to last. And, if you’re a member of the Government, you are most likely to say that the drop is worth it, because of the impact the measure has so clearly had. However, in mitigation of what might be coming next, you might also suggest that, while the stamp duty holiday helped, the demand for purchasing was already strong and we would – in all likelihood – have seen a significant boost in transactions anyway.

It also means that, while from a historical point of view, 2021 is going to look particularly front-loaded in terms of activity, we are most probably going to see far more stable figures through the end of the year. Which, in turn, will give us a much clearer idea of the market in 2022 and, from my viewpoint, are still likely to look relatively strong and growing in strength with each and every month.

The reasons for this are many but we still have large amounts of demand to move through the system including those who want to purchase homes for the first time, much like we have strong demand from landlords to start new, or add to, portfolios, much like we have a highly competitive lending market which is going to increasingly allow more potential purchasers to move/buy that first property – residential or investment. And, we are starting to see supply improving, albeit perhaps not at the levels we would like.

So, while some might be looking at July’s transaction figures and extrapolating out a subdued market for the foreseeable future, perhaps with the words, “We told you so”, poised on their lips, I’m not so sure. The initial drop-off was inevitable; transactions running at the same level as July throughout the rest of the year are not. We can all wait and see but I expect the numbers to be decent and, looking at 2021 as a whole, I think we’ll be able to say with some confidence that it will be the most activity seen in the UK housing market for well over a decade.