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UK Property Market Forecasts Still Positive Over Long Term

Industry-Property-Forecast-Longterm

As the ‘new normal’ starts to resume across the world, we’re only just starting to understand the long-term impact COVID-19 has had on both the economy and the UK property market. Following a slight pause in transactional volume, there have been too few properties coming to the market to accurately measure movements in new asking prices over the short-term.

Both Halifax and Nationwide have observed that this shortage of transactions, which is expected to continue over the coming months, will make gauging future house price trends difficult.

Despite this, we’ve gathered insights, forecasts, and opinions from across the industry on what the outlook of the UK property market may be for the rest of 2020 and beyond.

Industry Predictions

Rightmove – ‘Prices up as activity bounces back but 175,000 sellers missing from market’

Key highlights of the report

  • Average asking price of property coming to market in England up by an average of 1.9% (+£6,266), compared to March before the housing market was put on hold.
  • Over 175,000 missing sellers that couldn’t come to market from 24th March to 12th May – they’ve now sprung into action with record number of owners asking for valuations and daily new listings now up on last year.
  • 40,000 new sales agreed since market re-opened on 13th May, releasing flood of pent-up demand.
    • Unique price analysis of new sales agreed indicates upwards price pressure with buyers agreeing to pay 97.7% of the asking price on average, an improvement from 96.6% for sales completed in February.
    • Number of people phoning and emailing estate agents hits new daily record, 40% above the level seen in early March. Number of sales agreed recovers from a 94% drop to latest daily rate of just 3% down on a year ago.
  • Delayed spring market leads to traffic boom, with Rightmove recording its 10 busiest ever days in May and June, with home-movers spending over 955,000 hours collectively on their website on 6th June, as England gets moving.

Rightmove originally forecast a 2% rise in the price of property coming to market in 2020. This update from Rightmove shows positive signs but we can assume they are more modest about this growth for the remainder of 2020.

Miles Shipside, Rightmove director and housing market analyst comments:

“The traditionally busy spring market was curtailed by lockdown, but we’re now seeing clear signs of returning momentum, with the existing desire to move now being supplemented by some people’s unhappiness with their lockdown home and surroundings. Some may be unable or unwilling to move now, but those who are ready to take the plunge have jumped immediately into action.”

https://www.rightmove.co.uk/news/house-price-index/

Savills – ‘Long-term we remain optimistic’

Key highlights of the report

  • Pressure on prices in the mainstream market to be tempered by the extension of the furlough scheme.
  • Longer-term, Savills remain more optimistic with a continued expectation of price growth over the next five years. Furthermore, large parts of the prime market looked good value in the run-up to the current crisis which should underpin those sectors.
  • The pace of recovery will depend upon the state of the wider economy.
  • Interest rates are expected to be lower for longer. Savills original 2020 forecast of 15% UK house price growth over 5 years included an assumption that the Bank Base Rate (BBR) would rise to 2.0% by the end of that period. Oxford Economics current forecast is for it to be 1.0% under both baseline and downside scenarios.

Savills expect a small drop but as the economy opens, we should see a recovery. Low bank base rates and mortgage lending confidence should see the UK market remain relatively stable and will boost a quicker recovery. Mortgage lenders are in a much better state than compared to the last financial crash which means they are more likely to lend as the market unlocks. The time of this recovery will also depend upon wider economic recovery but government schemes such as furloughing staff has relieved pressure on property prices.

The latest update on the UK housing market can be found here in the May UK Housing Market update.

JLL – ‘Over the long term, real estate remains an attractive asset less correlated to other asset classes’

Key highlights of the report

  • Over the short term, investment activity in global commercial real estate is expected to slow.
  • Even though sentiment has been dampened, investor appetite in certain segments of the market has remained in spite of challenges to transacting.
  • While many investors have paused new acquisitions, select well-funded institutions and high-net-worth investors with longer-term investment horizons will be among the first movers.
  • Reduced international student intakes pose a risk to student housing.
  • Over the long term, real estate remains an attractive asset class.
  • The COVID-19 pandemic will undoubtedly change the way we live and work for the foreseeable future, and new trends will emerge that will become part of our ‘new normal’.
  • A ‘new normal’ will arise, such as mass adoption of remote-working.

Although investment into real estate has fluctuated over the years through various downturns, the overall trend has been for higher allocations to real estate, and we see no reason for this trend to reverse. Real estate continues to offer good risk-adjusted returns that are less correlated to other asset classes. This is where the advantage of real estate and a diverse portfolio is emphasized, remaining stable when the equity and commodities markets are seeing increased volatility.

The latest update on the UK housing market by JLL can be found in the Global Impact Report

Knight Frank – ‘Bounce back by 5% in 2021’

Key highlights of the report

  • Knight Frank reduced their forecast to 728,000 sales for this year, a decline of 38% on 2019 levels. Their previous forecast, which was published at the beginning of April, pointed to a 3% fall in UK house prices.
  • 20% drop in prime London prices since 2014 would shield this market from further falls.
  • Bounce back by 5% in 2021.
  • Downwards pressure on prices eases as demand rebounds.
  • Rental accommodation has proven resilient.

Alongside viewings: new buyer volumes are lower by 60% over the same period; new properties listed for sale are down 90%; offers made, down 80%; offers accepted, down 70% and exchanges are down the same amount.

Residential will remain a stable asset and may actually become more desirable when compared to commercial, due to changes in way of life and working environments.  

Knight Frank further commented:

‘If we add into the mix the fact that we have low new-build rates coming through in 2020, low inventory and low-interest rates, it becomes less likely we will see significant further falls from here.’

Latest Knight Frank resources, Covid-19 research, and residential transactions.

https://www.knightfrank.co.uk/research/article/2020-05-12-where-next-for-uk-residential-transactions-and-prices-

https://content.knightfrank.com/research/2000/documents/en/property-market-post-lockdown-june-2020-7256.pdf

Zoopla – ‘Demand levels in the rental market have surged in recent weeks’

Key highlights

  • House prices will not change significantly in the next two months as most sales agreed before the start of the coronavirus pandemic will continue
  • Government intervention and lender action will limit the number of forced sellers in the market
  • In the long term, house prices will be largely influenced by unemployment rates
  • Demand for homes in England rose by 88% after the housing market reopened in England.
  • Around 60% of would-be movers across England say they plan to go ahead with their property plans, although 40% have put their plans on hold because of COVID-19 and the uncertain outlook.
  • The number of property sales agreed is also steadily rising since the market reopened. But it will take some time for these numbers to rise significantly.
  • Post-COVID-19 bounce expected.

Zoopla’s Cities Index in April was conservative due to market activity but they expect a slow rate of growth to become more marked over the summer.

House prices are currently up around 2.4%, however, the economic landscape indicates that there may be some downward pressure on this level of growth. The extension of the mortgage payment holiday offers further support for homeowners struggling financially which will inevitably ease pressure on property prices allowing them to remain more stable.

Zoopla expects a clearer picture to emerge when they see more sales complete.

https://www.zoopla.co.uk/discover/property-news/zoopla-cities-index-april-2020/

https://www.zoopla.co.uk/discover/buying/coronavirus-impact-on-house-prices/

What are the banks saying?

Lloyds Banking Group

Key Highlights

  • Halifax reported prices dipped 0.6% month-on-month in April after a revised fall of 0.3% in March. The annual rate of increase moderated to 2.7% in April from 3.0% in March and a peak of 4.1% in January, which had been the highest level since February 2018.
  • The EY ITEM Club, a leading UK economics group, believes house prices could fall back 5% over the next few months. The expectation is that house prices will come under downward pressure from a sharp rise in unemployment and people’s incomes being hit, as well as lower consumer confidence and increased caution.
  • Very low borrowing costs, as well as the Bank of England taking interest rates down to 0.1%, should provide some support.

Lloyds Banking Group (which includes Bank of Scotland and Halifax) said it has been working on the assumption prices will fall by up to 5% this year, before recovering by 2% in 2021. Halifax reports UK house prices dipped 0.6% month-on-month in April with the annual increase rate down to 2.7%.

Nationwide

Key Highlights

  • House price growth slows sharply as the impact of the pandemic begins to filter through.
  • Annual house price growth slows to 1.8%.
  • Prices down 1.7% month-on-month, after taking into account seasonal factors.

Nationwide reported house prices rising by 0.7% in April which represents an annual growth of 3.7%, the strongest annual growth in three years. Many of these sales were agreed before lockdown.

Annual rental growth held at 1.4% in March, remaining steady for the past 5 months. Savills said the hit to the market could be more like 5%.

Nationwide May house price index.

Rental market forecasts round up

For landlords, the rental market growth continues to remain positive. At the top of the forecasts, Savills estimate rental prices will increase by 13.6% over the next 5 years. JLL forecasts a more modest 8.5% growth and Knight Frank sit in the middle at 10% growth.

Conclusion

As the market changes and adapts, it’s more important than ever before that investors buy quality. The modern tenant demands more from their living environment and lockdown has pulled this into sharp focus. This is backed up by Nationwide research which states that ‘15% of people said they were considering moving as a result of life in lockdown, with a third (34%) stating that they think differently about their home as a result of the COVID 19 outbreak – especially the importance for more indoor space’.

This only reinforces what we have always told our investors. Investment in a property should always be looked at as a mid-to-long-term investment, and having a quality product in an area with strong, sustainable tenant demand is vital.

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