What does 2021 spell for the property market?
Despite lockdown#3 being thrust upon us on 4th January, just as most people were returning to their more normal routines after the Christmas / New Year break, it seems that this news will do little to slow the momentum of the UK property market – given that official government advice still deems it ok to view potential properties and to actually move home.
Infact, it has been reported this week that mortgage approvals have hit a 13 year high. Figures from the Bank of England showed the number of mortgages approved by banks and building societies for home purchases leapt to 105,000 in November 2020 – the highest figure since August 2007. The number of new mortgage approvals – provides an early indicator for borrowing levels in future months (when buyers take up theses offers) have increased more than tenfold, after hitting a low point of 9,400 in May. Mortgage borrowing plunged during the first Covid lockdown as the housing market was effectively put on hold, but since then borrowing has soared to £5.7bn in November (up £1.2bn on the level in October).
Figures from the Bank also showed households repaid £1.5bn of credit card debt, personal loans and car finance in November. This bears out what many of us now working from home are experiencing – you spend less (especially during lockdown periods) and therefore able to save money.
But will this trend continue?
It’s fair to say, there’s lots going on….Against this backdrop of ‘business as usual’ in the property sector, we need to consider the impact of Brexit, the end of the stamp duty holiday, availability of credit, economic weakness from Covid-19 and job uncertainty before drawing any conclusions on what might happen to house prices this year.
Brexit – Now that a deal is finally in place, many property analysts feel Brexit is unlikely to have much of an impact on the sector in the short term. If Brexit causes significant job losses, then we can expect a drop in house prices. But many in the property industry are already forecasting that whilst house price growth will slow down this year, prices won’t fall – or at least not by much. If house price growth does slow down, it could prove to be a beneficial time to invest in property.
Stamp Duty Holiday – this is due to end on 31st March and until then, it is expected that demand will remain strong as buyers take advantage of the tax savings. Will activity stop in it’s tracks on 1st April though? It would seem unlikely as homebuyers have reassessed their home priorities in the wake of COVID-19, moving home will likely remain at the top of many people’s agenda even after the stamp duty holiday ends.
Mortgages – The number of mortgage products on the market has been increasing as lenders gain confidence, making it easier for homebuyers and property investors to secure mortgages for their purchases. Mortgage interest rates have been at record lows following the emergency cuts back in the spring when COVID-19 first started to have an economic impact. At just 0.1% you may think there’s only one direction that they can go (up) but some commentators are predicting the Bank of England could lower the base interest rate into negative territory. Even if interest rates increase, the rates are still at low levels and so this is a good time to lock in competitive deals.
Economic & Job Uncertainty – Without doubt there is going to be further rises in unemployment through 2021. Although the Furlough Scheme has been extended to the end of April, the Government has made it clear that they cannot protect every job and every business. Some mortgage lenders and economists warn that rising unemployment could trigger a collapse in house prices in 2021. Halifax, Britain’s biggest mortgage lender, estimates an annual drop of between 2% and 5%, while the Office for Budget Responsibility, the government’s economic forecaster, is more pessimistic, predicting an 8% fall. Yet, head over to Rightmove and you’ll get a very different opinion. Tim Bannister, their resident property data expert says “2021 has a lot of variables, and so is not an easy one to call, but with Rightmove’s unique leading indicators of buyer and seller behaviour we are confident that the housing market will continue to outperform general expectations next year as it did this. Our 2021 forecast of a 4% price rise is more conservative than the unsustainable 6.6% national average seen this year. There’s likely to be a lull in quarter two unless the stamp duty holiday is extended, but for many buyers its removal will not be make or break, though may lead them to reduce their offers to a degree to compensate for the higher tax, and indeed many sellers may be prepared to help to mitigate their buyer’s financial loss”.
So, as always there are those that fear the property market is due for a hard fall this year, whilst others suggesting it will be a much softer landing. There is renewed confidence with two COVID-19 vaccines approved in the UK. As more vaccine doses become available, consumer confidence could return to the wider economy and housing market. Since the first lockdown when the property market was shut down, the sector has made huge leaps in the use of technology. This has helped many property professionals overcome challenges that the COVID-19 pandemic has brought forward. Since the summer the level of buying, selling and letting activity has been at record highs. And the property market’s ability to adapt quickly has kept the market moving effectively and efficiently. Many people believe this will continue to do so throughout the uncertainty of 2021.
But there’s lots to navigate and it’s understandable to feel confused. That’s why I firmly believe that getting education before you spend thousands on a property venture will save you money and stress in the long run. Knowing what is a good deal when the market is rallying (and yet could also fall) takes professional insight and learning from people that have them is a sensible step.