HONG KONG SAR – Media OutReach – 22 June 2021 – With the UK experiencing the worst health crisis in a century and the greatest economic contraction in 300 years, it was astounding to many that the Office for National Statistics (ONS) reported that national house prices climbed 7.8% by the end of 2020. Heading into 2021, other factors have come to stir the market, including the Stamp Duty Land Tax (SDLT) holiday, the impact of a third lockdown, and the after-effects of Brexit. With so many points of uncertainty and conflicting forces affecting the UK Housing market, UK Holmes provides a London mid-year market review for an overview of the price action.
London Growth Lags National Indices: A Tale of Two Cities
In March, London was identified as the UK region with the lowest annual growth – for the fourth consecutive month. The year-on-year data reveals UK growth on a firm upward trajectory whilst the price curve for London is trending in the opposite direction.
Annual house price growth for UK and London:
|Region||Jan 2021||Feb 2021||March 2021|
The London market is essentially running at two speeds; Inner London boroughs which have a high concentration of flats have been languishing as buyers push further out in search of greater space and better value for money, while the outer London boroughs which feature a higher proportion of detached housing with gardens have experienced stronger growth.
The ONS data for London revealed that in the year to March 2021, the price growth for flats was just 1%, lagging well behind terraced properties (7.2%), semi-detached (6.2%) and detached (5.3%).
Government Stimulus Programs: Will the Boom turn into a Bust?
One of strongest triggers which sent sales activity into a frenzy was the SDLT holiday, providing up to £15,000 tax relief on a property purchase of £500,000. With the UK having experienced three lockdowns due to the pandemic, the government had no choice but to extend the furlough program and other initiatives supporting businesses and the self-employed. Despite the SDLT holiday due to expire at the end of March 2021, the housing industry successfully lobbied the government to extend this deadline to September on the grounds that the long delays in buyers reaching completion would result in thousands missing out on the tax saving.
As history has shown, government intervention in the housing market has often led to distortions in the balance between supply and demand leadings to booms and then busts. The valid concern is whether this time will be any different.
A Sharp Rebound in Economic Performance
Whilst the 2020 real-estate bull market gave every impression of being unhinged from the broader economy due to government stimulus efforts, this state of affairs is unlikely to prevail over the longer term. The UK economy is highly dependent upon consumer spending and, with the easing of lockdown restrictions, high frequency indicators of economic activity including motor vehicle traffic, retail footfall and restaurant bookings have increased.
The reason for this sharp rebound in economic activity and consumer confidence is down to one key factor: the success of the UK government’s vaccination program. By early June more than 75% of the national population had received at least their first jab. This encouraged the BoE to upgrade its 2021 GDP forecast to 7.25% in early May, a substantive increase on the 5% it had forecast just three months earlier. With the economy performing better than expected, GDP in April was 3.7% below the pre-pandemic level in February 2020, the smallest gap since Covid-19 reached the UK.
Consumer Sentiment and Market Shifts
The first quarter saw annual house price growth surge to a seven year high. Knight Frank established that in the month of March a string of decade-long records were broken, including the highest number of new prospective buyers registering, the highest number of offers accepted, and the fourth highest month for property viewings.
Aside from the government stimulus, the reasons for the market hitting these 10-year highs can be traced back to consumers’ changing preferences. Out of the lockdown experience emerged the key home-buyer preferences for size, space and mobility – larger homes, outdoor space, and increased mobility as the daily office commute became redundant. The experience of home becoming a place of work, home-schooling, and exercise prompted residents in central London to migrate to outer boroughs or the home counties in search of an enhanced lifestyle and better value for money.
Market Direction and Best Buying Opportunities
With optimism that the worst of the pandemic in the UK is behind, UK Holmes reports that the economy is on track to rebound sharply. A survey of leading economists by Bloomberg forecast that the UK will lead the recovery amongst major European nations with its fastest growth in almost half a century.
One of the biggest issues influencing the direction of the London property market is the tapering and withdrawal of the SDLT Holiday, which up to this point has driven demand as buyers rushed to beat the deadline. Should this demand collapse at the point where increased supply is coming onto the market, there is the very real risk that prices will fall.
UK Holmes believes that the next 6-12 months will offer astute investors in London property excellent buying opportunities. The inner-city areas are being reinvigorated by strong growth in the retail and hospitality sectors and offices are reopening. The market for flats, heavily depressed over the past 12 months, won’t remain in the doldrums permanently. However, UK Holmes is also firmly of the opinion market volatility will remain for some time. This will cause buyer’s remorse for those who fail to fully understand the fast-evolving market dynamics.
 Bank of England, Monetary Policy Report, May 2021