Prospects for UK property market in 2020

UK Property Market

Who would have thought, three and half years on from the 2016 Brexit referendum and the UK is only now starting to make any real progress. It is safe to say that 2018 was a volatile year for the UK political arena but 2019 took this to a different level. The “will they, won’t they” scenario regarding Brexit saw many investors retreat to the side-lines, sellers withdraw from the market and a lacklustre end to 2019. However, the December general election has set us up for a very exciting 2020!

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Newbuilds

The Conservative party has committed to 1 million new build properties over the next five years, the majority of which will be private sector homes. There will be some social housing but a loosening of planning regulations and investment by the UK government could potentially revolutionise the housing sector. However, there is already a lack of skilled labour in the construction industry and as a consequence the UK government will need to invest heavily in this area. Expect more focus on new build properties, affordable homes and construction apprenticeship schemes.

London property prices

Just prior to the landslide victory for Boris Johnson there were tentative signs that the London property market was starting to recover. Historically, where London leads, the south-east of England follows and this is likely to be a strong trend in 2020. We could also see a significant increase in overseas investment in London in the short term, prior to any further recovery in the value of sterling, as the path towards Brexit becomes a little clearer.

Whatever your opinion on Brexit, it has impacted the London property market more than most because of its international appeal. The uncertainty was extremely damaging but a degree of certainty, and much more visibility than we have enjoyed of late, are likely to prompt a continued short-term bounce in property prices.

Private landlords

There were hopes that the Boris Johnson would look to repeal an array of legislation introduced by Theresa May’s government which strengthened the position of tenants over landlords. This is unlikely in the short to medium term, as it would prompt a huge backlash from the voting public, but a reduced focus on social housing will help private landlords. Once the dust has settled on Boris Johnson’s monumental election win, no doubt lobbyists acting on behalf of private landlords will look to secure concessions going forward. Time will tell…..

On a more positive note, private landlords in the UK have managed to avoid the raft of extreme left wing policies that Jeremy Corbyn was looking to introduce. A strengthening of tenant protection, open-ended tenancy agreements, right to buy in the private sector and rent controls were just a selection of real threats to private landlords. While recent legislation has often been unhelpful, many landlords will just be happy to have dodged some of these extreme policies from the Labour Party.

Investors tasted regional markets and liked it!

In 2018/19 we saw an array of companies and public bodies switch head offices and business hubs from London to the Midlands/North of England. We saw Manchester, Liverpool, Birmingham and Leeds benefit hugely when the likes of Channel 4, HMRC and PwC began to focus their attention away from London. This tempted many investors outside of their traditional hunting ground of London and the south-east. Recent feedback and continued momentum would appear to suggest that investors now have a taste for the higher yields, and long-term potential for capital appreciation, outside of London. 

Cheap finance 

There are many reasons to be optimistic about the UK economy in the long term having narrowly missed slipping into recession. There will no doubt be ups and downs in the Brexit negotiations, political infighting as well as the constitutional crisis involving Scotland. As a consequence, it is unlikely that the Bank of England will raise UK base rates in the short to medium term hence cheap finance will be available for the foreseeable future. Some have even suggested a potential reduction in UK base rates in the event of a no deal Brexit. However, Boris Johnson has promised to leave the EU on 31 January 2020 and agree a trade deal in principle by 31 December 2020. 

As it stands, low UK base rates are just one part of the overall picture suggesting cheap finance will remain for some time to come. Changes to investment and traditional bank funding have left many UK banks awash with liquidity on their mortgage side. Unable to transfer this additional capital, as they did in years gone by, to their investment divisions they need to create a return hence further downward pressure on mortgage rates.

UK property prices

The ongoing recovery in regional property markets is set to continue, London and the south-east are already showing signs of recovery so the future does looks steadier. As we touched on above, cheap finance will play a significant role in the short to medium term with rental yields comparing favourably to minimal savings rates. Despite various red herrings regarding UK immigration, there is still likely to be significant net immigration for many years to come. This will lead to increased demand for both social housing and private rental accommodation, creating many opportunities for private landlords.

Experts believe that the EU had been banking on a hung parliament in the UK to place further pressure on the UK government and even cancel Brexit. The EU asked for strong leadership now they have it from the UK government, the EU is ready to open trade negotiations as is Boris Johnson. Can Boris Johnson afford to be more demanding in negotiations? Has the EU finally accepted Brexit is going to happen? Whether 2020 can beat 2019 for controversy and volatility remains to be seen but it looks as though the UK is now headed for uncharted waters. As they say, the world is your oyster…………….

Summary

The majority of investors are looking forward to 2020 with renewed hope and vigour after the Conservative party’s landslide election victory. In reality there is still an awful lot of work to do regarding Brexit, improving the economy and tackling the UK’s long-term housing shortage. Boris Johnson certainly talks the talk but can he walk the walk and win over his many doubters?

Read our related article:

/why-are-house-prices-not-reflecting-brexit-concerns/

Written by Julie Hanson

Julie is passionate about property – development, investment and portfolio planning. Along with husband Alec, Julie is actively building a property portfolio while helping others to do the same.

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