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The Downfall of the Capital? – December 2020 Property Roundup

The SevenCapital Property Roundup is all the headlines you need to know about the property market over the last month, brought together in one handy place. For the December 2020 Property Roundup, we consider how the Coronavirus vaccine could impact the market in the coming months, as well as the possibility of negative interest rates, the downfall of the London property market and an overview of UK rental yields.

Demand for Prime Central London Property Falls

The November industry roundup celebrated UK property prices topping £250k for the first time in history, with this momentum expected to continue into the new year.

The end of the UK’s first lockdown acted as a catalyst for a mini-boom in the market, and with the promise of an effective Coronavirus vaccine, combined with the rush of buyers before the stamp duty holiday comes to an end, Jackson Stops, a national estate agent, is anticipating a further 2% increase in property prices in 2021. However, the degree of such growth is largely dependent on the stamp duty holiday, which is expected to surpass 3% should it be extended beyond March.

London is in a league of its own in many areas of investment and finance when compared to the remainder of the UK but the story of the property market has been flipped over the last five years. Despite forecasted increases in price by 2025, the demand for property in prime central London has dropped significantly, due to radical changes in buyer needs, in light of Brexit and the pandemic.

With Summer 2020 largely being governed by many stringent restrictions, buyers have acknowledged the value of space – both inside and out. The soaring temperatures throughout the summer put a particular focus on garden space, which was enough for many buyers to uproot and relocate to more rural destinations outside of London when the property market reopened. Subsequently, property prices in prime central London have fallen by 1.6% since December 2019.

Due to the commute to work now terminating at the kitchen table for many, the desire to live in the capital is declining, making developments close to the London commuter-belt – such as The Metalworks, Slough – more appealing. Not only do these developments offer a reasonable commute to the capital, but the opportunity for more space at a fraction of London prices is paramount.

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What could the Coronavirus Vaccine mean for 2021?

2020 has coincided the capital’s consistent downfall since 2016, but the prospect of mass Coronavirus vaccinations in the coming months is a light at the end of the tunnel for many industries, especially London’s property market.

At the beginning of this month, the Pfizer and BioNTech vaccine was approved by the UK, and the roll out of the vaccine has already begun. The mass amounts of vaccinations that are expected to take place in the coming months could mean many things for society, including the return to some degree of normality.

Amongst many changes, this could conclude the working from home saga and see the gradual return to the workplace, which in turn, would have profound impacts on the recovery of the capital. As well as reopening the tourism industry, the increase of labour mobility will also encourage the rebound of short-term rentals in prime central London, and of course, regional cities, with many international workers returning to the UK for business purposes.

A Roundup of Rental Yields

With the UK enduring two national lockdowns in 2020, it is no surprise that the average rental yield has taken a hit since December 2019. In the past year, the average across England has dropped considerably, currently sitting at 3.53%

Aligning with its decline in the property market, the rental yield in London has been impacted the most this year. The city is usually a prominent leader for UK rental yields, hovering around 4.25% in December 2019, but has since reported a drop to 2.83%.

London is not alone with these falling figures, the South West, Yorkshire and the Humber follow with decreases of -0.25% this year, exacerbating the challenges faced by the rental sector during 2020.

On the other hand, many areas in the UK have defied all expectations, and are entering the new year thriving. Across the Midlands, rental yields have surged, with the East Midlands increasing to 3.80%, while the West Midlands has remained at a healthy number, setting foot into 2021 with a rental yield of 3.85%. This growth in rental yields demonstrates the resilience of the Midlands, positioning these areas as serious contenders for buy-to-let investors.

Joining the Midlands is areas of the North, with rental yields in Manchester and Liverpool both surpassing 4%. Evidently, there are now many cities in the UK ranking favourably for rental yields, which can be seen in the SevenCapital rankings for 2021.

UK Rental Yields Graph

The UK sees the Lowest Interest Rate in Three Centuries

The first national lockdown was detrimental to the UK economy to say the least, but the announcement of the recession in August 2020 contextualised the extent of England’s struggles.

While many efforts have been made to work towards restoring the economy, falling interest rates were inevitable this year, and have become of particular concern this month. This month, the Bank of England declared the current interest rate to be 0.1% – the most dramatic drop we’ve seen over the past 11 years.

The uncertainties surrounding Brexit only present further challenges for interest rates, with the possibility of the UK reverting to World Trade Organisation regulations at the end of December, and ultimately, threatening a negative interest rate. Although a negative interest rate would invite many concerns, it would arguably be an opportune time to invest in real estate. Next year could be the ideal time to invest in property due to the accessibility of more affordable mortgages and loans, combined with the declining rates on savings accounts.

December headlines have rounded off 2020 with an abundance of optimism, and the promise of an effective Coronavirus vaccine provides hope for the return of some degree of normality in the coming months. Thus, there are many possibilities for 2021, from the rebound of the capital, to the surge in investment opportunities within the property market.

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