I think we would all agree that 2020 was a very unpredictable year, who knew what challenges the world would face.
Let’s take a look at when and how we think the property market is going to recover going into 2021, and what factors are likely to have an influence on that recovery.
Lockdown 2020 and Working from home
March 2020 saw the start of lockdown and the shutdown of the housing market. Nobody knew when this would end, and everyone was left wondering when they would be able to move home. There was another worry of course, when the market did reopen, would people even be able to afford it? We soon found out the answer, and as the first lockdown came to an end, the ‘pent-up’ demand saw a flurry of activity resulting in house price growth of around 6.5%.
The ‘new norm’ of working from home saw many homeowners re-evaluating what they wanted from their property. The clear winner was more outdoor space. It seemed people were looking to move away from city locations, with little access to their own private outdoor space, to the countryside where space was more available. The introduction of the stamp duty holiday prompted an increase in activity in higher price bands where people could achieve more savings. In fact, in August house sales in the top tier saw a 59% increase in sales compared to 2019.
So, what will affect the market in 2021?
End of stamp duty holiday and furlough
You could say we have been experiencing a bit of a boom in activity, mainly fuelled by the stamp duty holiday and the desire for more private gardens. All good things must come to and end, and many believe that this ‘boom’ will stop just as quickly as it started. The office for budget responsibility believes that transactions will continue to rise between January and March with around an extra 100,000 transactions – though we are not so sure about this. With a typical house move taking around 3 months from start to finish, we believe that most transactions have already started (to try and beat the stamp duty deadline), and that now things will now start to slow down. Overall, there is a belief that house prices will remain fairly level this year with around a 1% increase in values. The big question to which the answer is still unknown (at the time of writing) is will the stamp duty holiday be extended? One thing we do know is that furlough is coming to an end, and there is a prediction that at its peak, unemployment in 2021 will reach a peak of around 2.6 million.
There is a growing sense of optimism that the vaccine rollout is going to bring this nightmare to an end. The Pfizer announcement among others has created a lift in stock markets, so as confidence returns it is hoped that the market will bounce back, though as we mentioned earlier, overall, prices have remained fairly flat in 2020. So, despite the end of furlough and the unemployment numbers above, there is a real hope that the vaccine rollout will lessen the impact of the decline in demand as the economy begins to recover.
Many people in the industry expect to see a greater recovery of confidence in the property market now that Brexit is done. However, we must tread with some caution as there are still some elements of the deal to be done. The exclusion of financial passporting rights and other measures could have some repercussions for property demand once a memorandum of understanding is outlined in March 2021.
Looking back at the unemployment numbers mentioned above, it is possible that Brexit could impact the UK jobs market further, so property buyers and investors should be aware. If the UK jobs market falters, this generally gives rise to an increase in renters that are unable to put their first steps on the property ladder. This would increase demand in the buy to let market but reduce demand in the home ownership space.
Taking all the above into account, it is impossible to fully gauge the impact of Brexit on the housing market, without considering what role the pandemic continues to play in the shape of the UK economy. Experts warn that we are heading towards a double dip recession. Remember however that even though we are currently living in lockdown 3, the housing market remains open, so for property buyers looking to move or invest, it is possible to do so.
Loan to value (LTV) limitations
Despite the experts predicting a bit of market withdrawal in the 2nd quarter of the year, this may result in lenders beginning to introduce products that favour those with smaller deposits. Approximately 85% of first-time buyers rely on these types of products. Whilst we do not expect to see a quick return to 95% lending, it is possible that it could be on the horizon. This could in turn lead to the opening up of the general market, as it is those first-time buyers that allow people to move to the next step up the property ladder.
So, what does this mean overall?
After the nightmare that was 2020, it is going to extremely difficult to second guess what the market will be like in 2021. With trepidation we dare to predict that quarter 1 could be positive. Quarter 2 may see a slight drop in property prices, so if you are looking to buy, for whatever reason, we suggest that now might be the time to do it because it is thought that the more robust recovery will come in late 2021 and continuing into 2022 and beyond.
Overall, the recovery of the economy is very closely linked to the vaccine rollout, and the hope that business returns to normal. Regardless of this being a slow process, there is no doubt that a recovery is predicted, and the UK’s love affair with property ownership is not going to come to an end anytime soon.