Article from Unbiassed.co.uk:
Financial Journalist
Updated 20 January 2021
Having hit an all-time high in December 2020, UK house prices once again stand on the brink of uncertainty. Will they fall, rise, stay the same – or something else? Nick Green looks at the complex web of pressures on the property market.
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Despite being one of the most economically turbulent years in living memory, 2020 ended with UK house prices – almost incredibly – at a record high. The average property in December 2020 was selling for £253,374 – up more than £14,000 on the previous year. This was in large part due to the stamp duty holiday introduced by the Chancellor to prevent a house price collapse, and there’s no doubt that this worked (at least temporarily). HMRC revealed recently that that home sales in October were over 8% higher than the previous year, and nearly 10% higher than the previous September. But what everyone wants to know is, was this just a mad binge to save money, and will it result in a monstrous hangover for the housing market?
Predicting UK house prices is never a science, and in the wake of Covid might seem closer to reading tea leaves. According to the Halifax, house prices rose by 6% over 2020, driven mainly by the stamp duty holiday – but that tells us precisely nothing about what they will do in 2021. Part of this is uncertainty over government policy, and whether or not Rishi Sunak will choose to extend the stamp duty holiday. Amongst the other many factors are how much longer the pandemic will last, how effective the vaccination programmes prove to be, how businesses and employees behave post-pandemic, and Brexit. All this is in addition to the usual – and also unpredictable – factors that have always influenced the housing market, such as the global economy.
None of which uncertainty has deterred the usual oracles from making predictions about what 2021 has in store for residential property.
How the market could dodge a slump
Mortgage lender Halifax predicts that house prices will at best level off in 2021, and may fall due to numerous ‘downward pressures’. Managing director Russell Galley cited the slow economic recovery that is expected, coupled with an anticipated rise in unemployment when the furlough scheme and other business support measures finally end. Halifax observed a slowing of house price growth towards the end of the year, which might support its prediction.
Certainly, the most common reason for house prices falling is a decline in the economy as a whole. People with mortgages lose their jobs or suffer drops in income, can no longer keep up their repayments and are forced to sell in a hurry. These ‘pressure sales’ drive prices down. If the UK is indeed heading for a surge in unemployment, that is what the market can expect.
However, these are not ordinary times. The government is clearly very anxious to minimise the economic impacts of the pandemic, as evidenced by the various support schemes of which the stamp duty holiday was just one. Banks too are being unusually patient, participating in the government’s mortgage holiday programme, as they don’t want to be seen to be capitalising on the crisis. Many have also been able to add to their savings throughout the past year, and paid off debt – totalling around £4 billion nationwide. There is also the real hope of the stamp duty holiday being extended, in light of the third lockdown. So although a crash remains a possibility, it seems more likely that the cushions of government support, pragmatism from banks, and saved cash could prevent a mass-defaulting on mortgages and hold off the risk of forced house sales.
House prices heading for a ‘rebalancing’
The current best guess, therefore, is that house prices will ‘level off’ in 2021, perhaps falling a small amount, but that a 2008-style collapse is a far less likely scenario. However, there is a further way in which house prices are likely to move significantly – not up or down by huge amounts, but ‘sideways’. There is widespread speculation that prices in urban areas will cool off, in favour of a hotting-up in the suburbs and the countryside.
The pandemic has caused the UK public to radically reassess what it wants from a home. For the past year, a property in a place like London has quite simply been a millstone: relatively small, little or no private outside space, less access to green spaces, and stripped of the benefits that used to make up for that – namely, being close to places of work and leisure. Fed of up being effectively incarcerated in the city, homeowners in London and other economic hubs are casting envious eyes towards the sticks.
No-one expects the pandemic to last forever. But it has proved that for many industries, home working on a large scale is achievable and can even have some advantages. Now that most of the former objections to this practice have been demolished, it’s inevitable that it will be far more prevalent in the future, even if the UK never locks down again. It follows that demand will increase for larger properties based further away from workplaces, now that people know they can work from home for at least part of the week. Add in the knowledge that all this could very well happen again in a few years’ time, and the historic appeal of city living suddenly looks to be on shaky ground.
It’s worth noting that some of London’s lustre was flaking off even before 2020. A year earlier, the gap between London and rest-of-UK prices was at its lowest since 2014, having peaked in 2017. Covid has accelerated that change. Leading estate agent Lucy Pendleton said, ‘The simple truth is that extra space has become non-negotiable for legions of homeowners with families.’ Trends at the top of the market are telling: in a wry echo of the Blur song, the wealthiest homeowners are now ploughing money into country houses instead of London property. In the last quarter of 2020, prices of country houses rose across the West Midlands (3.7%), and the south-east and east of England (2.1%), with the most expensive (over £1m) rising by most. Where the rich go, the rest of the market often follows: estate agents in the commuter belts have been inundated with buyers looking to flee the cities, while in summer Rightmove noted a 42% rise in searches for houses with gardens.
Homebuyers voting with their feet
It’s said that ‘a rising tide lifts all boats’, but we may be about to see a turning of the tide that leaves some parts of the housing market relatively lower or higher than before. An overall rebalancing between country and city, and perhaps even across the North-South divide, seems the most likely outcome based on where we are now.
Buyers who in the past may have lost a lot of money commuting could now potentially borrow far more on their mortgage, since fewer overheads means their affordability criteria will be more relaxed. Even working from home just one or two days per week can save significant amounts that can be put towards mortgage repayments. Conversely, one of the key financial advantages of urban living – lower travel costs – may now be irrelevant for many. A flow of money out of the towns therefore looks probable.
As ever, there is a caveat. Chris Sykes, consultant at Private Finance mortgage brokers, believes that in the long term London’s appeal will only be enhanced by the lockdown. He points out that social and cultural activities are among the things people have missed most during lockdown, and that when restrictions are lifted buyers will flock back. ‘With the advent of the vaccine and a slow return to normality, we believe we will see London property boom,’ he says. There is certainly a logic to this, and if some employers move to restrict homeworking post-pandemic, it may well put the brakes on the exodus to the countryside.
Nevertheless, the genie is out of the bottle now – both in terms of the ease of homeworking, the newfound appeal of bigger homes and more outside space, and the unexpected downsides of city living. Some, no doubt, will never lose their love of bright lights and busy streets. But the imbalance of property prices across the country may be about to get a lot less extreme.
Property strategies for 2021
So what should you do if you’re looking to buy a place in 2021?
If you’re in an urban area and looking to move to the country or a quieter commuter town, you may find yourself in more of a seller’s market. The good news is, it’s a big one. If you’re brave, and confident that distance from your workplace won’t be an issue, then you should find a plentiful choice of areas with pleasant surroundings and good broadband. Good transport links to the city is still a shrewd move, however, as even if you don’t need them it’ll make the property easier to sell on.
If you’re in the country and hoping to move to the city, now is probably as good a time as any. There may even be bargains for investors to pick up, which may recover their value if cities become popular again. However, buy-to-let properties are currently in the doldrums, given the low appeal of shared accommodation. The boldest investors may want to investigate some of the UK’s cheapest areas for property, as the old mantra ‘location, location, location’ becomes less relevant post-Covid.
Original Article here:
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