Home Business Insights & Advice The UK property market outlook for 2021: What you need to know

The UK property market outlook for 2021: What you need to know

by John Saunders
30th Dec 20 2:05 pm

It’s been a tough year for the UK economy, and many expected the property market to reflect that in the wake of the Covid pandemic. These fears proved to be unfounded, though, with prices remaining resilient and lending going up in some areas.

With further challenges on the horizon for the nation, will the market remain buoyant? Or could 2021 be a tough year for property owners and prospective buyers?

V-shaped recovery

The first lockdown in spring 2020 took most people by surprise, but perhaps the most surprising thing about the pandemic, in terms of property, was discovering just how resilient the UK market is. This was shown through a V-shaped recovery: first property transactions plunged as the Covid outbreak took full effect – sales simply ground to a halt as the shock to society caused people to either pull the plug on deals or stop making offers.

However, a sustained period indoors fuelled a rise in demand for space. The top end of the market felt much of this demand, with property specialists Savills reporting a rise in sales over £1 million in rural areas. But it wasn’t just properties commanding prices similar to lottery jackpots that were sought after – smaller properties with gardens or terraces were more popular than larger apartments.

This rise in demand meant sales returned to their pre-pandemic level and this high demand saw 2020 end on a strong note, something that is likely to seep into 2021.

Vaccine bounce, stamp duty holiday and lending increases

The arrival of several potential Covid vaccines was great news for society, and a shot in the arm for the property market. As vaccinations rise, it’s likely that consumer confidence will, too.

A survey conducted just after the announcement of the new treatment yielded positive results: 1 in 4 people interviewed by Savils said the vaccine would make them much more likely to move thanks to the positive news. It could be the start of a ‘vaccine bounce’ as the new year begins with an influx of optimism into the market, with buyers more likely to commit to deals and sellers more likely to accept offers.

The vaccine breakthrough came during another positive campaign for the property market: Rishi Sunak’s stamp duty freeze. In July, the UK Chancellor announced that there was to be no stamp duty (the tax a buyer pays upon completion of the sale) on properties valued up to £500,000 in England and Northern Ireland. While only a temporary measure, it removed one of the main barriers for buyers, who normally have to find between 2 and 5% of the sale price to pay the duty. The only downside is a March 31 deadline to stamp-duty-free sales, but it could deliver a boost to the market as a flurry of buyers rush to take advantage of it at the last minute.

As a final bit of good news for buyers to round off the year, high street banks announced a return to 90% loan to value mortgages. Natwest and Lloyds Banking group made the move after strong demand in the market. With first-time buyers only needing to find a 10% deposit, it might push property sales even further than expected.

A rocky ride after spring

While the above positive factors are welcome news for the start of 2021, they are only temporary. Experts believe that we might be on for a rockier ride after the stamp duty holiday finishes at the end of March.

This will also be the day when the government’s Help to Buy scheme, which provides buyers with equity loans, will change for all first-time buyers. Plus, overseas buyers will have to pay an extra two per cent stamp duty on homes in England and Northern Ireland.

To add one more important downside – the government’s furlough scheme comes to a halt at the end of April. Higher unemployment and lower earnings are on the cards and these have historically been linked to property market downturns, as buyers simply have less cash to play around with.

Finally, while the Brexit deal was a favourable outcome for the country when comparing it a ‘no deal’ scenario, there are still fears that the uncertainty generated by it could affect the property market, particularly outside London.

Weighing up these negative aspects is just as important as looking on the bright side if we want to get an accurate idea of what to expect. The result could well be a volatile market throughout the coming year.

Three-part market

Volatility, of course, is to be expected in the property market, and it’s something that shouldn’t worry us too much. 2021, however, could see stronger highs and lows than usual. Savils describe the possibility of a ‘three-part market’ for 2021, where we see dramatic swings, but their overall outlook is generally positive.

Such a market could be described as follows:

1. The year starts off with a bang in the first quarter

2. The above mitigating factors results in a dramatic lull during the summer

3) a society buoyed by widespread vaccination and a relative return to previous pandemic behaviour kickstarts another rise in activity at the end of the year.

Other analysts are a little more cautious, however. Property website Zoopla foresee a slower recovery from the summer lull with property prices running at 10% below 2019 prices until the end of 2021. A stagnant finish to the year could be on the cards.

While both positive and negative factors should always be studied, perhaps the best way to look ahead to 2021 is by keeping a level head. It’s easy to get excited by the highs and distraught by the lows, but for those looking at the property market then it’s good to find a middle ground. Behaving in a rational manner is the best tonic to the volatility of real estate and careful research and planning will help people to do this.

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