While there is no doubt there are technical issues in play, continued growth in demand for UK property has surprised many people. If you looked back only a few weeks ago, the expected ending of the stamp duty holiday prompted a drop in sales figures. When the Chancellor of the Exchequer announced an extension to the end of June, then tapering of relief to the end of September, buyers suddenly re-emerged.
What are the immediate prospects for the UK property market?
Reports from RightMove and Savills
Recent reports from RightMove and Savills have cast a fascinating light on the short to medium-term prospects for the UK housing market. The latest figures from RightMove show:-
- An average increase of 0.8% in house prices over the last month
- The strongest spring sellers’ market in the last decade
- Forecast growth in 2021 of more than 6%
The fact that two out of every three properties left with agents have been sold subject to contract is a firm reminder of the new emerging demand.
The report from Savills is a little more detailed and is interesting reading for property owners:-
- Confirmed growth of 7.3% in UK property prices in 2020
- Revised forecast for 2021, moving from 0% to 4%
- Growth forecast for 2022 comes in at 5%
- Growth over the next three years will fall slightly, coming in at 4%, 3.5% and 3%
- House price growth in the five years to 2025 is forecast at 21.1%
Interestingly, as seen in previous surveys, there are high expectations for the Midlands and the North of England. While London and the South-East will likely take the lead in 2021, other regional markets could outshine the capital in 2022.
UK economic expectations
A mixture of extended furlough, the extended stamp duty holiday, and hopes of reduced short to medium-term unemployment bode well for the immediate future. The Bank of England is said to be on the verge of increasing short to medium-term economic growth forecasts. The furlough extension should reduce the impact of an unavoidable increase in unemployment, with the economy stronger by the time furlough finishes.
There was even talk that UK interest rates could increase in the short to medium-term if inflation, as expected, hits 2% later in 2021. This is the Bank of England’s long-term target for inflation and one which seems certain to be hit sooner rather than later. This all suggests that the UK economy is well set for recovery and already in the recovery phase, which is good news for UK property prices.
Bumps along the way
Whether we like it or not, COVID will not be defeated in the short to medium-term. On the plus side, the UK vaccination programme is among the most successful in the world. Unfortunately, there will almost certainly be bumps along the way as Boris Johnson looks to move ahead with his roadmap to reopening the economy. That said, the fact that UK house prices increased by 7.3% in 2020, against an economy that fell by 10%, would seem to indicate a backbone of demand.
Whether due to technical factors, genuine demand or the introduction of a 5% mortgage deposit scheme, UK property prices have performed better than even the most optimistic could have expected. The next couple of years could be seen as a “catch up” period, after which house price growth may well fall slightly. However, the fact that the UK property market is still standing after the turmoil of the pandemic shows the strong backbone amongst investors.