Is the UK Still a Good Place to Invest in 2021?

At a time when external factors such as lockdown and the Brexit transition are impacting every facet of the UK, there’s no doubt that the property industry has stood out as a reliable sector. That said, as we enter a new year, it’s not surprising that many investors are still wondering: is the UK still a good place to invest in property in 2021?

How has Coronavirus affected UK property?

Following the gloom and doom predictions of mid-2020, UK property has reached all new heights heading into 2021. Property prices rose to a six-year high at the end of 2020 according to Nationwide, rising by 7.3% over the year.

Heading into the first lockdown early last year, the prospects for the market were bleak. Since the summer however, the demand for property has supported the market to record-breaking levels. After being confined to our homes for the better part of a year, we’re seeing changing priorities for both tenants and buyers pushing prices higher and higher.

This growth has been largely supported by the stamp duty holiday, a government scheme that was introduced at the perfect time to maintain and even extend price increases. The thing is, this incredible boom hasn’t been relegated to just London or those leaving city skylines for somewhere green – it’s widespread across the UK with HMRC reporting transactions hitting their highest levels in five years.

Prices to rise in 2021?

Despite the stamp duty holiday ending 31st March, Rightmove research suggests that prices could continue to rise throughout 2021, increasing by 4%. 

While this is a bullish forecast, it’s feasible if the level of demand continues or the stamp duty holiday is extended. Similarly, the circulation of the COVID-19 vaccine would go some way to restoring certainty to the market and potentially trigger a new wave of transactions.

Knight Frank and Zoopla predict that 2021 will be more muted – they expect prices to rise between 1% and 1.5% over the year, a slowdown on last year but a rise nevertheless. Savills research takes a more subdued approach, suggesting that prices will remain flat during 2021 but will quickly accelerate in 2022 to their revised forecasts. 

So what does this mean for investors? While the UK property market has almost certainly defied expectations, it’s more than demonstrated its resilience in a challenging market. With many experts suggesting a slowdown during 2021 before rapid increases in the years after, there’s incredible potential for future price growth.

How will the Brexit transaction impact UK property?

One of the biggest challenges UK property has faced over the last four years has been the uncertainty that an event like Brexit can have on the market. With many investors unsure of how property prices would react to the UK leaving the EU, a ‘wait-and-see’ approach has become increasingly common. 

Fortunately, on December 24th, the UK and the EU agreed on a Brexit deal, laying out trade agreements and how much involvement the EU would have in the country. While property has remained resilient throughout the Brexit transition and the global pandemic, this is a crucial level of certainty that has been returned back to the market. 

So how will Brexit impact UK property? As you’d expect with an event this unprecedented there’s not a huge amount of history to go off but it’s unlikely that the deal will have a major impact in the short-term. It’s more likely that property prices will be driven by COVID’s effect on the economy and the jobs market. 

While there is potential for Brexit to cause job losses, most research suggests this would have a minor impact on prices, slowing growth rather than causing price falls. As always, prices are governed more by demand and mortgage availability.

Low interest rates and high demand could maintain momentum

With interest rates still at a historic low and the potential for the base interest rate to go negative – plus more products on the market as lender confidence increases – we’re seeing a window for investors to have an easier time securing mortgages. 

On the other hand, demand has never been higher. With the stamp duty holiday in place until the 31st March, it’s expected the scheme will support high levels of demand throughout the first quarter of 2021, which will also be buoyed by vaccinations becoming more commonplace. 

At the same time, another lockdown will likely cause even more homebuyers to reassess their living situations long after the scheme has ended. With this in mind, there’s an argument to be made that if people are confident in the market during a global pandemic, they’ll still have that confidence post-Brexit. 

In essence, while there’s no knowing how Brexit will affect the economy, the UK property market has shown its resilience against uncertainty over the last four years.

What is the economic forecast for the UK in 2021?

While UK property might be reaching new heights, the same can’t be said for the UK economy. With the UK entering a technical recession between April and June 2020, before experiencing the fastest three-month growth on record between July and September, it’s in an uncertain position. 

While it is effectively 9.7% smaller than it was in 2019, the Bank of England predicts that growth will kickstart in 2021, led mostly by a COVID vaccine.

JLL also predicts that economic growth will restart around this time, although pre-COVID levels will only be achieved mid-2022. According to their research, ‘UK economic growth in 2021 will not be sufficient to recover all of the lost GDP from 2020. The economy will grow strongly in 2022 before GDP growth reverts towards its trend rate of growth between 2023-2025.’

They also believe that unemployment will continue to rise throughout 2021 in certain sectors – those hit hardest by the ‘disproportionate impact’ of COVID or the removal of Furlough. Their forecast ends with unemployment levels reaching pre-COVID rates (3.5%) by 2025.

With all of this in mind, how will the UK economy affect property prices? Assuming that the government continues to guard against large-scale unemployment and continues to integrate schemes to assist with the economy, it’s less likely that we’ll see the high amount of job losses that could lead to forced selling or mass void periods. 

For now it seems more likely that we’ll see minimal growth across 2021 that could increase if the economy recovers faster than expected.