2020 has been an unpredictable year, to say the least. With unprecedented challenges across the globe, we take a look into when and how the property market is predicted to recover, the factors that are influencing these trends – and hear from the experts on buying and selling in the new year.
The start of lockdown in March saw the housing market effectively shut down, leaving many to wonder when they would be able to move home – and if they could afford to do so when the market reopened. As the first lockdown ended, pent-up activity saw prices reach a six year high, with an annual growth of 6.5%.
The ‘working from home effect’ saw 30% of homeowners looking for more outdoor space, and the stamp duty holiday increased activity in the bands which would see the most savings – in August, sales of top of the ladder homes were up 59% on the previous year.
2021 looks set to be no less remarkable than 2020 has been, says Laurus’ CEO James Hollingsworth.
“The ability to keep pace with the property market has always been paramount for us,” says James, “and I’m confident in our ability as a team to pre-empt and adapt to the next set of challenges our clients might face in the new year. Despite the many moving parts affecting the property market in 2021, having a well-informed, experienced team around you makes all the difference when you’re buying or selling.”
Affecting the market in 2021
- Economic activity and the withdrawal of financial relief
- Rollout of the vaccine
- Lifestyle – travel and nightlife in prime central London
- Brexit and international trade
- LTV mortgages and renewed first time buyer activity
From the start of the mini-boom, forecasters have been predicting it will end almost as abruptly as it began. The latest reports from the Office for Budget Responsibility predict that transactions will continue to rise in Q1 of 2021, but fall sharply in Q2 with the end of financial relief schemes like the stamp duty holiday and furlough. Reports project around 100,000 extra transactions taking place in January – March 2021, but bodies such as the RICS are much more cautious about the strength of the market beyond then. However, the overall picture remains positive, with around a +1.0% growth expected in house prices by the end of the year.
Hopes of a vaccine
Of course, these predictions may be subverted by the optimism that is building as the vaccine is rolled out to more groups. In the UK and globally, the Pfizer announcement alone created a temporary lift in stock markets. As confidence returns, it is hoped the property market will bounce back, although prices have largely been predicted to remain flat since last Spring. As it stands, unemployment is projected to reach 2.6 million in 2021, but the introduction of a vaccine may lessen the impact of faltering demand as the economy begins to recover.
Prime Central London and International Buyers
In terms of property, it is hoped the vaccine will be beneficial to the prime central London (PCL) market, which has been affected by the lack of activity, nightlife and travel to the Capital. The international outlook is positive, with Knight Frank reporting that, for prime sales, 45% of cities globally have already returned to pre-pandemic levels in Q3 of 2020.
Ali Khadir, Founder of the Khadir Team at Nest Seekers, gives us his thoughts on the strength of the PCL market.
“The activity levels have been very strong in the PCL market in comparison to last year. For instance, the number of offers accepted during August was the highest total in more than 20 years. Also, prices grew by 0.3% in prime central London, the highest monthly rise since July 2015."
He says, "I believe that the domination in PCL market has been more domestic this year with fewer international buyers active. This does not mean that the overseas buyers are gone. Not at all in fact, transaction levels in Q3 of 2020 were 76 per cent above the same quarter last year. International buyers are now more likely to relocate their families to the UK and invest in a family home rather than buying a property on an impulse.”
Savills also reports that, despite a 60% fall in activity for £1 million+ properties in April, sales in the PCL market are recovering. In Q3, £5 million+ transactions were up 17% on last year. With hopes of a vaccine and international travel restrictions easing, Savills projects a +4.0% increase in PCL capital values in 2021, and a +7.0% increase in 2022.
More LTV Mortgages – good news for first time buyers
Although forecasts indicate a withdrawal from the market in Q2, this should mean that lenders begin to reintroduce mortgages which benefit those with a smaller deposit – roughly 85% of first-time buyers (FTBs) use this type of loan. With the stamp duty holiday and mortgage availability affecting FTBs during lockdown, the slow reintroduction of loan to value (LTV) finance in 2021 should have a positive long term impact for this group, and the market as a whole.
A vaccine might also boost this area of the market, with the decreased risk convincing banks to lower their deposit requirements for FTBs.
Brexit and Trade Deals
Brexit, despite uncertainty, is lower down on many risk monitors in light of the pandemic. There will always be a need to move home, Brexit or not, but a number of economic factors, particularly trade deals, could still have far reaching implications for the UK property market.
The current UK-EU trade deal reaches an end on the 1st January, and the odds of a new deal being struck have been fluctuating wildy. As of the 16th of December 2020, the likelihood of a deal being struck is at 81%, according to Private Equity News. Without a comprehensive free trade deal there may be some economic implications which affect housing markets generally. If the pound weakens, this may not be good news domestically, but may result in more interest from international buyers, especially in London. Visa restrictions for expats and those with holiday homes – meaning you can no longer stay for more than 3 consecutive months in the EU – have caused indignation, but we’re yet to see if the international market will be impacted.
In any case, predictions from the Office for Budget Responsibility back in July that house prices might drop up to 10% in the event of no-deal should be taken lightly, especially after record-breaking growth in the property market during lockdown. Forecasts remain positive, with a quick recovery in the housing market predicted, and even the RICS prediction that average rent will go up by 2.5% is good news for the buy-to-let investment market.
What does this mean for you?
With a year of surprising activity behind us, it is always going to be difficult to second guess the market in 2021. Tentative forecasts are positive about Q1, and recovery in 2022 is hoped for across the board. House prices are predicted to drop in Q2 of 2021, so if you are looking to buy, you have until the market begins to recover in 2022, and if you are looking to sell – particularly a top of the ladder home with outdoor space – now would be ideal. The City market's recovery appears to be closely tied to the vaccine and businesses returning to normal, but a recovery is predicted, nonetheless.
Here’s what Ali advises if you’re thinking of selling, particularly in the PCL market, in 2021:
“Looking at 2021 it is likely the new year might be very competitive with high demand in some areas and more of a challenging market in other areas. It is therefore important to be more strategic when selling your home. Study and seek expert advice when trying to sell in your local market. Conditions are very different all over London and its best to understand your market rather than rely on what you read in the media or what you hear from friends."
"When selling your home, it’s really important that you start with pricing it correctly. Over-priced properties tend to sit on the market for far longer than is desirable, and quickly becomes ‘stale’ in the eyes of would-be buyers. My advice is to price your property competitively and make sure it’s presented in a ready-to-move-into condition. No matter how the market is, good or bad, a well-presented property which is priced right and competitively will sell.”
This report has only touched briefly on the factors affecting the market, and if you would like to discuss your property investment further, please feel free to get in touch with our team on the number below.
If you are looking to make a move in the property market yourself or would like to speak to our property team about referring a client, please don't hesitate to get in touch on 020 3146 6300 or email@example.com.
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