UK Residential Market Set to See Busiest Year in Over a Decade?
The residential market continues to defy all expectations. In their latest House Price Index, Savills reveal that current house price growth stands at 4.1% – a huge u-turn on their original prediction. While initial 2021 forecasts suggested property prices would remain flat, a revised look at the market now shows steady price increases, fuelled by a potent cocktail of rising demand and constrained supply.
Although the demand for property has been surpassing the supply since the Stamp Duty holiday began in July 2020, the extension of this tax break has only exacerbated the situation. When compared to last year’s figures, the demand for homes is currently up +29%, while the flow of new supply is now lagging behind by -2%. With this undeniable disparity, it’s no surprise that annual UK house prices are up from 2.3% a year ago.
However, this influx in prices is not applicable throughout all regions of the UK, with the West Midlands and South-East becoming hotspots amongst both homebuyers and tenants. While the annual house price in the West Midlands has undergone 4.8% growth, along with a 3.75% increase in the South-East, prices in the capital are still suffering from the London exodus.
Emerging from changes in tenant demand and a shift towards flexible working, this exodus has caused property prices in London to see their lowest growth since March 2020. Property in the capital is notoriously expensive, but with just a 1.9% increase in prices over the past 12 months, the extreme capital growth it’s used to seeing has all but disappeared.
With the majority of UK property on an upward trajectory, Savills is anticipating this above-average performance to continue for the remainder of 2021. The total value of sales for the year is expected to reach £461 billion, a 68% increase from 2019. This significant rise in transactions has largely been attributed to the types of homes that are selling, with low interest rates and the Stamp Duty holiday making high value homes more popular.
Grainne Gilmore, Head of Research at Zoopla, says: ‘Buyer demand looks to ease as the economy opens up, but it will remain elevated compared to previous years, which we anticipate will create one of the busiest sales markets in more than a decade in 2021.’
Although the Stamp Duty holiday will inevitably end in a few months, the once-in-a-generation ‘reassessment of home’ that we have seen could sustain the market. While office spaces will continue to reopen and rise in capacity throughout the year, flexible working is seemingly here to stay, meaning this relocation trend could also continue, albeit not as strongly as we have seen over the last year.
What Does this Mean for Investors?
SevenCapital Director, Andy Foote, says: “The current state of the UK property market could be perceived as a double-edged sword for a lot of investors. While many may be waiting for prices to drop in order to enter with more affordable prices, there is the possibility of missing out on the price growth that we’re going to see throughout the year.
“As prices continue to rise, however, this could see Rishi Sunak’s efforts to turn Generation Rent into Generation Buy dissipate. Although we now have 5% mortgages and low interest rates, the increasingly competitive prices that we are seeing are still inaccessible for a lot of people.
“In turn, it’s likely that this will anchor a lot of current tenants in the rental market. We already know that the current demographic of renters is becoming bigger and is spanning a broader age range, many of whom are staying in the market for longer. So with the added pressure of climbing property prices, Buy-to-Let property is a prime investment asset.
“With the growth we’ve seen in the sales market (outside London) translating into rental property, this has seen a lot of areas across the UK, such as Birmingham and the South-East become hotspots amongst tenants, and subsequently, investors. But with market outlooks, such as Savills’, highlighting the possibilities of 2021, we’re yet to see the biggest growth in both property prices and rents.”