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UK housing market boom expected to continue into early 2021

UK investors have expressed their nerves over the UK’s economic outlook due to a combination of Brexit uncertainty and the impact of the COVID-19 pandemic.

According to a recent survey of 1,000 UK-based investors by FJP Investment, all of whom have investments of more than GBP 10K in the country (excluding residential property and workplace pensions), 62% feared that the British government’s handling of the coronavirus crisis would result in a long-term recession.

At the same time, 41% said they were concerned about the impact a no-deal Brexit would have on their investments while less than half of those surveyed believed the UK would remain a global investment hub following its departure from the European Union.

However, 51% of survey participants said that UK real estate would remain appealing irrespective of the coronavirus or the post-Brexit relationship between Britain and the EU.

Although the Coronavirus pandemic has exerted pressure on the UK housing market, 40% of investors surveyed believed house prices will continue to surge going into 2021, opposed to the 19% who believe property prices will fall.

Of all the properties worth buying, research carried out by property developer, StripeHomes, shows that new-build properties will be a great investment as they command the highest premiums.

image of letters spelling investment. Concept of real estate investment in 2020

New-build properties offer a significant investment opportunity

While property prices for new-build homes have declined since the start of 2020, opportunities in the market remain promising, as new-builds are still securing a 26% price premium when compared to the average cost of existing properties in the UK.

Data from StripeHomes shows that new-builds in the North East are offering the best investments, followed by the East Midlands and West Midlands, with recently built homes in the latter two areas selling for 35% and 34% than existing property in the area.

That being said, nothing is certain in property investment as the COVID-19 pandemic has created a more complex picture for the outlook of the UK housing market.

There has been a significant rise in UK property prices since May, which was when the country began exiting its first national lockdown. Chancellor Rishi Sunak’s stamp duty holiday added a welcome boost, bolstering activity in the housing market among domestic and foreign buyers.

While there has been a sharp decline in housing prices since England and Wales entered its second national lockdown, property prices are still 34% higher than they were during the same period a year ago.

According to the UK’s largest mortgage lender, Halifax, housing prices rose by 7.5% year-on-year in October 2020 at GBP 250,457 – representing the most significant jump in housing prices since 2016-end.

However, the question remains as to whether the UK’s housing market boom will last?

What to expect from the UK property market now and post-2020

Will 2021 see the end of the UK housing market boom?

The UK’s leading property group, Zoopla, has described 2020 as a “rollercoaster year”, due to yo-yo-ing housing prices triggered by national lockdowns and the stamp duty holiday.

Housing prices plunged after UK Prime Minister Boris Johnson’s second national lockdown in England renewed fears over the UK economy’s outlook but rebounded swiftly amid high demand and property availability.

Zoopla forecasts this coming December to be the busiest month for the market in over ten years, albeit the company warns that only “50% of property sales agreed in January will receive the stamp duty holiday benefit.”

The first quarter of 2021 is expected to record more than 100,000 additional property sales as buyers rush to finalise deals before the stamp duty holiday ends in March.

However, demand is expected to slow after this period as the savings on the stamp duty concludes and the furlough scheme expires.

Heather Powell, head of property at Blick Rothenberg, noted that the average housing price in England is seven times more than the average salary across the country, and thirteen times the average salary in London.

If unemployment spikes following the termination of the furlough scheme in Marsh, mortgage lenders will have no choice but to reduce house prices in order to support the market.

Housing prices in the UK rose by an annualised rate of 3.5% in the month of October to an average of GBP 223,550 – the strongest rate of annual growth in three years.

However, the Office for Budget Responsibility (OBR) warns that the uptick in housing prices will reverse by more than 8% in 2021 as this year’s ferocious demand dissipates.

To a degree, this may already be coming into effect, given that housing price growth slowed month-on-month in October, rising by 0.3% compared to the 1.5% gain recorded in September.

The end of the Brexit transition period could also have a damaging impact on housing demand, especially if the UK and the EU fail to reach an accord on their future relationship.

UK housing market prices 2021

Uncertainty weighing on the UK housing market outlook

There hasn’t been any concrete information on the rights EU and EEA citizens will have in respect of their right to rent, live and work in the UK post-Brexit.

However, it can be surmised that if the new rules are unfavourable and more EU member states find the UK an unattractive place to settle this will significantly reduce demand at the margins of some markets.

The lack of progress on Brexit trade negotiations also poses challenges to investors who are trying to plan for future investments, with some turning to safer options for investments.

Aside from Brexit, other factors, such as the unemployment rate and availability and hopes of a COVID-19 vaccine will also have a direct effect on the housing market outlook for 2021.

With much still uncertain, the Office of Budget Responsibility has maintained its dovish outlook on housing market activity.

The Office of National Statistics (ONS) forecasts property prices to remain 17% lower over the next five-years, compared to previous estimates calculated in March due to the impact the end of the Coronavirus Job Retention Scheme will have on household incomes.