If there is one thing which has been constant in the UK property market since the US mortgage crisis of 2007/8, it has been depressing headlines. Experts have constantly tried to talk down the UK economy and the UK property market. It is fair to say there have been challenges, there have been difficulties but the market has on the whole remained relatively strong. Let’s not forget, we have had the challenges of the EU referendum and COVID, as well as the fallout from the US mortgage crisis, in the last 12 years. So, what can be expected of UK property prices in 2021?
Relative strength is in evidence
It can be very easy to get caught up in the headline average UK property price figures. We often forget that these should be viewed on a relative basis, as the cost of living continues to rise – as do wages, albeit relatively slowly in recent times. The following graph shows the performance of the Land Registry House Price Index. We have taken the figures back to 2006 purely to show the rise and fall of the index as a consequence of various economic challenges.
It is not difficult to see the impact from the US sub-prime mortgage sector collapse in 2007/8. This appeared to bottom out around 2009 and indeed average UK property prices returned to their previous highs in late 2014. The performance of house prices since then has been mixed although the trend has certainly been upwards. There are numerous factors to take into consideration such as:-
- Growing UK population
- Relatively stable economy
- Lack of new build properties
- Government incentive schemes
Before we move on to expectations for different areas of the UK, are you able to identify the impact of the 2014 EU referendum on the house price graph above? Probably not…..
London property prices
As we move into 2021 there is renewed hope for the UK economy, and the UK property market, in light of the trading agreement between the EU and the UK. Optimistic forecasts suggest this could increase the UK economy by up to 6% in 2021 although we also need to appreciate COVID.
It is fair to say that the London property market is more sensitive to UK/EU trading arrangements than any other part of the country. While we await confirmation of London property price performance in 2020, expected to be around +2.5%, forecasts for 2021 vary widely. The general consensus seems to be that London property prices will fall back slightly in 2021, by around 1%.
However, the majority of forecasts for 2021 were produced prior to the confirmation of a trade deal with the European Union. While the headline suggests that both the UK and the EU are “happy” with the future trading arrangement, the devil will be in the detail.
Even though COVID is still the unknown factor in future forecasts, the above graph shows how relatively strong the UK property market has remained through recent challenges. London also has specific exposure to the UK financial sector, as a major international finance hub. We are yet to see any long-term arrangement with the EU which would allow the UK financial services sector to access the European market. Keep an eye out for this!
Regional property markets
Over the last couple of years we have seen many companies and investors moving funds out of London to regional markets. The Midlands and the North-West, as well as the North-East to a lesser extent, have benefited. There were a number of reasons for this redistribution of property investment:-
- Political focus on regional economies
- Concerns regarding a no deal Brexit
- Rental yields
- Potential for long-term capital appreciation
We continue to see the likes of HMRC and other public bodies such as the BBC decentralising their operations from London. We have also seen numerous accountancy firms such as PricewaterhouseCoopers switching focus to the Midlands.
While this is likely to continue in the longer term, there are concerns about the potential fragility of regional economies in the immediate future. On one hand we have relatively high rental yields, while on the other hand local economies such as the North-East have been struggling in light of the coronavirus pandemic.
It will be interesting to see if any property investors repatriate their funds back to the London market, away from regional counterparts. Or have property investors developed an appetite for higher yielding property investments outside of London, with a greater balance between income and long-term capital appreciation?
There is no doubt that the coronavirus pandemic will impact UK government spending, taxes and public services for many years to come. Normally you would expect a huge impact on property prices, with perceived levels of demand weakening. However, due to a mix of cheap finance, a relatively strong economy, inadequate new build numbers and a growing UK population, demand for property remains surprisingly strong.
We should probably expect few fireworks in 2021 when it comes to house price performance. However, there are reasons to be more optimistic once the UK returns to a degree of “normality”.
The location of an office plays a critical role in the company's success. Companies may move their offices to more strategic locations to make their...
Investing time and effort in a vegetable garden is extremely rewarding. Not only do you have a chance to cultivate healthy, tasteful, organically...
A report by Rightmove has highlighted the ongoing strength of the UK property market. According to data collected by the company, the national...