Property markets are shaped by fundamentals but also by investor sentiment, and given the rollercoaster year it has been it is understandable that sentiment has proven volatile. Within the last 10 days alone Lockdown 2.0 was announced and triggered, the United States has a new President Elect, and a vaccine with the potential to tame the global pandemic has been discovered.
Making investment decisions in such an uncertain and tumultuous climate has undoubtedly been challenging. Though it is important to highlight that the property market has proven stalwart, once again justifying its status as a safe haven asset.
With the tantalising prospect that we are now nearing the ’beginning of the end’, and with hopes of returning to a semblance of normality by Easter, we offer this market update and provide a glimpse of a post-Covid property market.
The ’Mini Boom’ generates Record Highs
It is not an overstatement to say that the property market is currently hot. The latest Halifax House Price Index reveals prices have reached yet another record high. The average house price now stands at £250,457– a 7.5 per cent increase year on year, and the highest rate of increase since June 2016 (pre-Brexit levels of price growth).
With record breaking headline statistics, it can be hard to remember that the stringent measures of Lockdown One resulted in the near complete shutdown of the UK Residential Property Market. Whilst some at the time predicted a fall in house prices, we believed that the government measures of the Furlough Scheme and Mortgage Holidays would avert the forced selling that typically leads to price reductions. A reduction in transaction volume, rather than prices, would be the end result and indeed this proven to be the case.
As Lockdown ended, pent-up demand combined with a re-evaluation of lifestyles and the Stamp Duty Holiday triggered a ’Mini Boom’ in the sales and rental markets. The volume of buyer activity has been extraordinary. ’Data from TwentyCi suggests more than 135,000 sales have been agreed in the past four weeks, some 50 per cent higher than in the same period last year.’
The Feared Headwinds of Lockdown 2.0
The prospect of a second national Lockdown, and the concerns of its impact on employment, economic output, and the potential shutdown of the housing market led Savills to ask ’to what extent can the market continue to defy economic gravity?’
Thankfully we entered the second Lockdown with an assurance from the Housing Secretary, Robert Jenrick, stating unequivocally that ’the housing market will remain open throughout this period.’ The news that estate agents, mortgage valuers and conveyancing solicitors could continue to operate averted a potential wave of disrupted or cancelled transactions which could have led to house price reductions. Further market relief was offered when the government moved to extend the key financial support measures of Mortgage Holiday and the Furlough Scheme, once again reducing the risk of forced sales.
Despite these preventative measures, concerns of rising unemployment and continued uncertainty over the length of disruption and impact of Covid 19 threatened to undermine the fundamentals of demand. Thus, there was a justified fear that the market momentum may have stalled in the face of economic headwinds.
Covid: The Beginning of the End?
The British Prime Minister, Boris Johnson, said in his inimitable style that he had talked for a long time about “The distant bugle of the scientific cavalry coming over the brow of the hill– with a solution. The November announcement of the Pfizer Covid 19 vaccine, and its promise of 90% effectiveness, may well mean that the cavalry has finally arrived.
The equity markets, already buoyed by clarity following the US election, reacted with jubilation at the news. With the FTSE 100 surging nearly 5% in an hour. The Prime Minister went on to outline that the UK has ordered enough doses to vaccinate 20 million people, a third of the population.
Whilst Lockdown 2.0 is still in effect, the vaccine news has marked the turning point of the Covid story. The climate of uncertainty that has pervaded throughout 2020 is beginning to lift, and the nation can tentatively plan for a return to normality by Easter. This news has had three key impacts on the investment property market:
1.The clarity and the corresponding boost to consumer confidence has unleashed a wave of pent-up demand from property investors; such buyers, who had some justification in hoping for a buying opportunity in the form of a price fall, can now see that prices are likely to remain stable.
2.There is an understanding that the tail end of the Covid economic impact is likely to result in an increase in rental demand, as potential home buyers postpone their purchasing decisions or require the increased flexibility that renting offers. Therefore, investors have faith in the continued growth of UK rental demand.
3. As Governments attempt to stimulate economic recovery, interest rates are likely to remain ’ultra low’ for the foreseeable future. In such a climate there is a renewed appetite to generate stable high yields and avoid the devaluing impact of inflation on cash holdings.
The Known Unknowns
We at Prosperity Wealth have an optimistic outlook for the Investment Property market of the UK and the opportunities it offers to our investor clients. This optimism is grounded in a deep understanding of the long-term fundamentals.
In the short term we believe the support measures taken by the Government will continue to protect homeowners and the property market; this will enable potential buyers to continue committing to purchasing decisions both residential and investment. In addition, the economic impact of Covid is likely to continue to increase rental demand, exacerbating an existing trend that has its growth rooted in broader fundamentals that remain unchanged.
In the mid-term we acknowledge the Known Unknowns surrounding the two key challenges facing the UK property market. Firstly, the deal terms of the Brexit negotiation are far from settled or clear. Secondly, whilst the Chancellor’s Stamp Duty Holiday was launched with an end date of March 31st 2021 set– we cannot be certain that this date will be adhered to, or whether additional stimulus measures will be enacted.
We believe that these mid-term unknowns are more than balanced by the fundamentals of the UK property market. The systemic undersupply of property has yet to be addressed, and the rising population and increasing demand for rental property will continue to generate strong returns for our investors.