Are house prices destined to go down?
Investors, homeowners and renters have all been wondering what the impact of COVID-19 has been on UK property and what may occur in the months leading into 2021.
Are people moving out of the city of London, for instance, and are house prices destined to go down (particularly if we end up with a “no-deal” Brexit)?
Is country property going up in value, and what has been the impact of Chancellor Sunak’s Stamp Duty Holiday since its introduction in July?
How have landlords and those with second homes (e.g. Buy To Lets) been affected by the pandemic and what are their prospects going forwards?
In this article, our financial advisers offer some thoughts on these important questions as things currently stand in September 2020.
It is, of course, difficult to completely summarise all of the UK property market events since the start of 2020. Yet the main event is arguably the near-standstill in transactions which took place as complete lockdown measures were implemented between the 23rd of March and the 10th of May (when it was eased slightly). In this period, property viewings became impossible, leading to a near-halving of transactions.
Airbnbs across the UK flooded the property market as tourists cancelled their bookings, leading to a surge in supply over demand. Many landlords struggled to cover their expenses as many renters went into furlough or lost work, leading to late or unpaid rents. Landlords could not force out troublesome, non-paying tenants due to the eviction ban.
Fortunately, at the time of writing in September 2020 the picture of the UK property market is a lot more positive. The UK is now officially out of lockdown (though many social distancing policies remain in place and are being reviewed on a weekly, if not daily, basis). Property transactions have surged as paused deals have been picked up again by buyers and sellers. A crucial question hanging over all this, however, is what may happen to the housing market in the months ahead. Could a “second wave” of COVID-19 bring things to a halt again, or could there be a vaccine available to help mitigate this? What about the imminent end of the UK-EU Brexit transition period at the end of the year, which the former has stated it will not extend?
It is notoriously difficult to predict what the market will do next week, let alone next month or next year. During the lockdown, for instance, many analysts anticipated that UK house prices could fall as much as 10% due to the pandemic, but this is yet to transpire. This was partly helped by the Chancellor’s temporary cut to stamp duty (set to run until March 2021), as well as by the cut to the base rate by the Bank of England to 0.10% - which many commentators expect to also run well into 2021 and possibly later. What is unclear, nonetheless, is how the end of the UK Job Retention Scheme in October 2020 may affect the housing market. Some forecasts expect this to cost 2m jobs as employers let go of unaffordable (or perhaps unneeded) staff. Many of these are expected to be those who will suddenly find themselves unable to pay rent. A question mark remains over whether the scheme will be extended, however.
One notable feature of the present housing market is that many lenders have restricted their range of products to prospective buyers. Several banks have required larger deposits (e.g. 20-25%) to try and mitigate the perceived economic risks brought on by COVID-19. This may remain the situation for the months ahead, possibly causing many first-time buyers (who had a 5-10% deposit) to put off buying a house until further notice. This environment might be an important factor behind why many people - especially young couples and families - are starting to move out of London, where property prices are typically higher. Oxford University has noted that at least 250,000 people fled the City before lockdown, looking for cheaper living costs and countryside. If this trend is sustained or even increases then it is likely that this will impact house prices across the UK; possibly leading to lower prices in London and higher asking prices in popular regions (e.g. the East Midlands and Yorkshire).
Whilst coronavirus has dominated the headlines throughout 2020, the other significant event on the horizon is the end of the Brexit transition period in December. At present, the mood appears to be largely negative amongst both UK and EU negotiators about the possibility of striking a free trade deal which could mitigate the likely economic disruption of a “no-deal” outcome. Again, it is difficult to predict the impact of different scenarios on the UK housing market in 2020-21, since these are largely uncharted waters. KPMG predicted earlier in the year that a no-deal Brexit could lead to a 6% fall in UK house prices, which is mirrored somewhat by the Office for Budget Responsibility's own projection of a 10% fall. Of course, these forecasts may not come to pass and the chance remains of both sides striking some form of deal before the December deadline. It is also conceivable that the transition period may be extended into 2021 to allow more time for the details of a trade deal to be hammered out, although political realities on the UK side appear to make this unlikely.
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