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UK Property Market Forecast 2021

As we enter the final quarter of 2020 and look ahead to 2021, the market is in a precarious position. While we’re still feeling the effects of the post-lockdown mini-boom, there’s no doubt that any positive UK property market forecast for 2021 relies on several factors.

Firstly is demand. The strength of ‘pent-up demand’ has been a defining factor in the property market’s success when all other sectors are struggling. While demand doesn’t seem to be slowing down in any key areas, many positive predictions are relying on this demand to continue.

Second is the stamp duty buyer holiday. This government initiative has had a huge part to play in keeping the property market afloat – driving investment from both domestic and overseas buyers looking to make a saving while keeping many people in work. How the UK market fares after this scheme ends in March 2021 will be a key indicator for the rest of the year, and, in fact, may be the reason we see an extension of the scheme.

One of the big questions is: with experts describing 2021 as the last year before the upwards swing of a new property cycle, will the mini-boom deliver enough of a short-term bounce to carry property owners through the external economic struggles that are forecasted?

UK House Price Predictions: 2021 – 2024

While some experts are predicting doom and gloom, recent performance is demonstrating something entirely different.

According to Rightmove, three new records for activity were broken in September, culminating in prices rising by 5.5% since the same period last year – the highest growth rate in four years.

They believe that this rate of growth could continue until year end and even into Q1 2021, peaking at around 7% at the start of the new year. This would then coincide with rising activity levels that we typically see in the spring, as people start to think about moving once again.

Some of the larger PLC’s are taking a similarly positive view over the long-term.

UK Guide Download

House Price Growth Expected Albeit Subdued

Early forecasts from JLL believe that 2021 will deliver house price growth – albeit subdued when measured against 2022 – 2024. Their original prediction highlighted around 2% house price growth next year, before rising in the years following – hitting around 14.8% in total by 2024.

Knight Frank expects similarly ‘muted’ growth across the entire period. They predict that price growth will reach around 4% in 2021, before falling to 3% between 2022 and 2024. Knight Frank also suggests that regional cores will perform better than London during 2021, while the capital will start to recover more quickly in the years following.

In the long-term scope of 2021, Knight Frank predicts that house sales will actually feel the most impact, falling by around 15%.

Savills stand by their original prediction that house prices will ‘bounce back’ in 2021 – despite their original prediction of prices falling in 2020 clearly not coming to fruition. This means rises of around 5% next year, followed by a large boost in 2022 before settling back to ‘normal’ rates of growth in the years following.

Price Forecast 2021

Clearly, what we are seeing is a general consensus that prices will continue to rise next year, even if that growth is more subdued than expected. 

As previously mentioned, many experts believe that even despite external factors such as Coronavirus, the UK property market forecast 2021 was always destined to show a dip in the market before the upswing in 2022. 

What will be interesting to see is how the fallout of government initiatives and changes in demand will play out over the long-term.

UK Rental Price Predictions (2021 – 2024)

At a time when Buy-to-Let continues to be incredibly popular, it’s vital to keep an eye on the rental market. While property prices are clearly an important consideration, the rental market moves independently, bringing with it its own predictions.

Rental prices also tend to be more resilient than house prices, especially during a downturn. If we consider the financial crisis in 2009, average rentals fell by just 2% compared to house prices falling by 18%. It’s fair to assume then that the same will occur here, although investors focused on consistent rental demand in student areas may feel more pressure than others.


Largest rental rises to occur in 2021

With this in mind, Savills still believe that rental prices will rise by double figures by the end of 2024 – with the largest rise coming in 2021. While economic issues can impact tenants ability to pay rents, there’s no doubt that rising demand can easily drive rental prices up and there’s certainly no shortage of demand at present.

Savills also believe that while yields may fluctuate over the short term as the market readjusts, there could be attractive opportunities available for those willing to hold out over the long-term.

Certainty will Drive Momentum

In their ‘City Centre Forecasts’, JLL predict that the majority of key regional areas will see rental growth in 2021 – led by Birmingham, Manchester and Edinburgh. All three of these cities are expected to see 3% rental growth next year, with Birmingham seeing 16% and Manchester seeing 16.5% by 2024.  

As supply continues to be outweighed by demand in many of these areas, the market is still stimulating rental growth. JLL also believes that as we see more economic and political certainty in 2021, the UK property market forecast 2021 will reflect this momentum, fuelling both growth and future transactions.

Rental Forecast 2021

Mortgage Availability Restricts First-Time Buyers

It’s expected that homeowners will overtake first-time buyers in the 2021 market. While first-time buyers have been a driving force since 2010, following the introduction of Help-to-Buy and the availability of high-LTV-mortgages, the market looks set to change.

Now that we’re seeing tighter lending criteria, challenging economic forecasts and restricted mortgage availability, first-time buyers are once again struggling to get back into the market, even though activity is still well above where it was in 2019.

This is largely down to lenders withdrawing products due to the increased risk that comes with an issue such as the Coronavirus.

Lenders are now seeing borrowers with smaller deposits as much more at risk of falling into negative equity, which has led to many simply withdrawing their higher LTV mortgages. 

In turn, many first-time buyers are now discovering they need to have much larger deposits – in some cases almost 40% – which is contracting the market overall. 

On the other hand, homeowners are experiencing a once-in-a-lifetime opportunity to re-evaluate their living arrangements. With many desiring more space and the chance to buy during a stamp duty holiday, those that were once content to sit and pay off their mortgage are now supporting rising activity in the market.

It’s expected this trend will continue well into 2021, at least until the end of March when the stamp duty holiday ends.

UK Guide Download

UK Economic Forecast 2021

In their latest update, Oxford Economics highlights their expectations for the UK’s GVA – which will be 5% lower than the same period in 2019 due to challenges brought on by the pandemic. That said, following this decline, they expect strong recovery to set in later this year followed by rapid GVA growth in 2021.

Similarly, their forecast for London remains unchanged – the capital’s output is set to decline by 8.7% during 2020 but will grow by 7.2% in 2021.

One of the major factors that will impact the economy going forward is still Brexit. As the latest deadline approaches and the rumblings of a potential ‘No-Deal’ begin to stir, Oxford Economics have laid out what this would mean going forward.

Their research briefing for the UK suggests that a No-Trade-Deal Brexit would lower the Gross Domestic Product (GDP) by 1% by 2022. At the same time, a No-Deal Brexit would almost certainly result in the Bank of England applying further easing of fiscal policy, bringing with it higher government investment.

Oxford Economics currently have the chance of a No-Deal Brexit occurring as high as 40%.

GDP Graph

Unemployment Rates Affecting Property?

One of the major trends in our UK property market forecast 2021 was the effect of unemployment rates on property. Oxford Economics predicts that the UK economy will contract by 9.7% in 2020, despite rebounding following lockdown.

This will likely impact employment heading into 2021, peaking around March, although the firm predicts that this will be a ‘short shock’. In the long-term, they believe that the economy will grow by 8% over 2021, ensuring that unemployment falls progressively after the initial rise.

In turn, this fall in unemployment should limit potential for price falls over the last three quarters of the year, although the initial impact may be compounded by the end of the stamp duty holiday and the new tax on foreign investment landing around the same time.

What affects property prices? 

The main things that affect property prices are:

  1. Supply and demand
  2. Economics – Including inflation and employment
  3. Political certainty and uncertainty
  4. Borrowing Costs and Interest Rates

Supply and demand in the UK Property

While many factors that affect property prices are down to the buyer themselves, there are several fundamental metrics – easily categorised as ‘demand-side’ and ‘supply-side’ – that can affect property value. 

For example, demand is heavily affected by economic growth and resident income. If any of these see increases, people are able to spend more, which increases demand and thus, prices. Supply is much more simple – if there aren’t enough properties being built, prices will naturally rise. 

While the economy is still struggling during lockdown, demand is still a huge driver in the success of the property market and supply in many areas is still incredibly low. In Birmingham, for example, 4,000 new homes are needed per year for the next decade to meet demand. In terms of supply we’ve only seen 900 new homes per year over the last decade.

This is a huge discrepancy that is not only limited to Birmingham. While this may be bad news for first-time buyers, it’s good news for investors. This is a clear indicator of tenant demand in regional cores and is a great demonstration of why property growth is expected to continue in 2021.

Supply vs Demand

Inflation and Interest Rates vs Property Prices

Interest rates typically fluctuate because of inflation, which in turn is determined by the overall state of the economy. An example of this is in 2008, when the aftermath of the financial crisis meant low inflation and thus, low interest rates, introduced as a way to encourage growth and employment. 

The current bank rate sits at a historic low of 0.1% and may continue to stay there for some time, although the Bank of England still maintains an inflation target of 2.0% and expects that over the next five years, as the economy grows once more, a ‘gradual and limited increase in interest rates over the next few years will likely be needed to keep inflation at our 2% target.’

According to the Bank of England, a major influencer in the current bank rate will be the Brexit result. While the government has told us to expect a ‘no-deal’ decision, this would likely require an interest rate that balances the pressure from both the pound declining in value and a cut in spending.

So what does this mean for property? Interest rates have a complicated effect on property investment but long story short – rising interest rates will make purchasing more expensive and reduce the availability of mortgages. It should be noted that typically, the most severe effects occur when interest rates spike or drop suddenly – the gradual rise that the Bank of England is predicting is much less impactful for investors.

Predictions for Pound Sterling in 2021

After the challenges of 2020 and the Coronavirus, the Sterling still remains incredibly sensitive to Brexit headlines – particularly with the threat of a No-Deal looming. This means that generally, week-to-week, it’s likely to experience waves of volatility as negotiations shift. 

Looking at the UK property market forecast for 2021 as a whole, we can see that exchange rates are relatively unchanged following the end of the first lockdown, highlighting a market that is typically in ‘wait-and-see mode’.

While the Pound has started Q4 relatively well after the demonstration of ‘constructive talks’ between the EU and the UK, we still saw a negative reaction to PM Boris Johnson’s talks of an ‘Australia-style’ trade deal.

Ultimately, expect the performance of the Sterling to be heavily influenced by both Brexit deadlines and any advances towards a final deal. 

Until then, there is little concrete evidence – or precedent – that can deliver a solid prediction, although many online vendors have the GBP hovering around 1.10 against the EUR throughout most of 2021 – barring any major incidents.

Exchange Rate Forecast

Is Now a Good Time to Invest in Property?

The answer to this question largely relies on your aversion to risk and unsurprisingly, the location you’re looking to invest. We say location because the once-in-a-lifetime stamp duty holiday means you can maximise savings in popular areas closer to that £500,000 bracket – such as the South East and London Commuter Belt.

This can equal upwards of £10,000 saved for investors, while still delivering a quality product in a high-performing region. 

That said, there’s no doubt that uncertainty remains in the market and while these windows of opportunity are open, investors still need to be prepared for the challenges that could be approaching with Brexit deadlines and the potential for a second lockdown

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