A Piece of EnglandA UK buy to let property blog |
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A Piece of EnglandA UK buy to let property blog |
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Covid dominated all aspects of our lives in 2020, including the UK's property market. The response to it will shape the industry throughout 2021 and beyond. At the start of 2020, the property industry was looking forward to a good year. A new parliament with a substantial majority had given rise to a fresh level of confidence. January saw increases in both transactions and prices. Then came Covid, turning everything on its head. As we approach the new year, the pandemic and its economic impact will continue to dominate, with its secondary effects influencing how 2021 might play out. Stamp Duty holidayThe first quarter will see would be buyers scrambling to meet the holiday deadline of 31st March. Historical figures suggest that only half will be successful - in the past, just 54% of sales agreed in January complete by the end of March. Nevertheless, a strong first quarter is expected, particularly in the higher priced segments. VaccinesThe speed at which the vaccination programme rolls out will govern the rate at which restrictions on movement will ease and confidence improves. Current government projections indicate a trend to a 'new normal' during the second half of the year, whatever that new normal turns out to be. The economyA strong recovery is expected, albeit from a very low base. Continued government support is likely, yet unemployment is forecast at 6% to 7%. This will affect confidence throughout the year, slowing down transaction levels. Mortgage availabilityHigh loan to value ratios all but disappeared in 2020, severely impacting first time buyers, half of which borrow 85% or more. If this continues, lack of finance will break housing chains, creating a downside risk for first time and second step markets. Mortgage forbearanceTransaction volumes fall when confidence is low. Prices fall when forced sellers enter the market in significant numbers. Support for borrowers has avoided this so far and is set to continue until March 2021. Commentators who follow the mortgage market closely anticipate lenders continuing a forebearance policy into the second half of the year. Interest ratesThe Bank of England's checking of banks' technical ability to handle negative interest rates underlines the fact that the current ultra-low rates are set to continue for a long time to come. Low rates have supported the property market since 2009 and will continue to do so. Government policyAt some point, the government's focus will have to shift from pandemic support to paying for it, something that will run well beyond 2021. Tax and spending policies are likely to affect both confidence and demand in the longer term. Supply and demandHousing supply was falling even before the pandemic broke. The housing shortage in the UK is chronic and a further 100,000 units were lost to Covid in 2020. This structural imbalance has been decades in the making and will take just as long to resolve. Beyond the shorter term issues coming in 2021, this imbalance will continue to be the main driver of the property market in the medium and long term.
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27/11/2020