Is the London propery market resilient enough to make it through the next year?
London property market predictions for 2021: six major threats identified from Brexit to a third wave of Covid
It’s hard to remember the last time London’s property market was poised quite so delicately on a knife edge. The capital’s property prices rose by almost 10 per cent in the year to November, according to the Office for National Statistics, while the number of homes sold was up on 2019’s figures.
This year, despite lockdown, demand for homes has held up. Rightmove recently reported its busiest-ever January. But with a series of hurdles to negotiate, is 2021 the right year to buy?
Threat 1: Stamp duty
The tax holiday encouraged buyers with a tax break of up to £15,000. But it is due to end on March 31, despite pressure on Chancellor Rishi Sunak to take a more tapered approach to help the thousands currently mid-purchase.
Winkworth chief executive Dominic Agace thinks the Government will compromise with a “short extension” to allow those already going through the buying process to benefit. “The Government has proven to be very pro-homeownership,” he said.
Threat 2: Mortgages
Lenders have struggled to cope with high demand for mortgages over the past year and thousands of deals are stuck in a massive backlog.
Rightmove says it now takes more than four months for a sale to go through, although choice is improving, crucially for buyers who only have a 10 per cent deposit. Interest rates are holding low and steady. The average interest on a two-year fixed mortgage is 2.52 per cent.
Lawrence Bowles, research analyst at Savills, believes that when the stamp duty holiday ends, first-time buyers will regain their “competitive advantage” because their pre-existing tax breaks will resume. “Banks may be launching more FTB-friendly products now anticipating them to make up a greater proportion of the market in the spring,” he said.
Threat 3: Brexit
Years of post-referendum uncertainty had a massive impact on consumer confidence, and the property market paid the price. Agace feels that now the deed has been done buyers and sellers feel reassured. “There is clearly a worry that the financial services industry will suffer job losses … affecting buyer demand in prime central London,” he said. “So far these concerns have been unfounded.”
Threat 4: Furlough
Buying agent Laura Johnstone, of London Property Search, believes the end of furlough in April will trigger a short-term increase in property for sale, as some of those out of work will have to sell or rent out, increasing supply and lowering prices.
Bowles is more optimistic. His take is that furlough will continue until lockdown restrictions are over. “This will allow businesses to bring their employees back to work,” he said.
In the longer term the Bank of England believes the economy could return to its pre-pandemic size early next year as those consumers who are still working begin spending the £125 billion in lockdown savings.
Threat 5: London exodus
The population of the capital is expected to decline for the first time in more than 30 years, according to PwC. It expects more than 300,000 people to leave London in 2021, and fewer people means less demand. Even with this, the capital’s population will still total 8.7 million. There has also been an exodus of over 1.3 million European workers, with over 700,000 leaving from London, so the true extent of the drop may be much higher.
As London reopens, Agace believes younger buyers and renters will return to the centre to “make up for lost time by enjoying all the bright lights a city has to offer”.
Threat 6: A third wave?
The evolution of the pandemic is, of course, the great unknown. Most of us are pinning our hopes on the vaccination programme to return the world to a relatively normal state by the summer.
But nobody truly knows how things will play out and even in a best-case scenario, the social and economic effects of Covid-19 will be felt for years to come.
On the other hand, the past year has made us all appreciate the importance of where we live more than ever and the deeply imprinted desire for homeownership will continue to drive demand — for those in a financial position to step on to or up the ladder.