UK Holmes: London Property Market 2021 Mid-Year Review

HONG KONG SAR – Media OutReach
– 22 June 2021 – With the UK experiencing the worst health crisis in a century
and the greatest economic contraction in 300 years, it was astounding to many
that the Office for National Statistics (ONS) reported that national house
prices climbed 7.8% by the end of 2020. Heading into 2021, other factors have
come to stir the market, including the Stamp Duty Land Tax (SDLT) holiday, the impact
of a third lockdown, and the after-effects of Brexit. With so many points of
uncertainty and conflicting forces affecting the UK Housing market, UK Holmes
provides a London mid-year market review for an overview of the price action.

 

London Growth Lags National Indices: A Tale of Two Cities

In March, London was identified as the UK region with the lowest annual
growth – for the fourth consecutive month. The year-on-year data reveals UK
growth on a firm upward trajectory whilst the price curve for London is
trending in the opposite direction.

 

Annual house price growth for UK and London:

Region	Jan 2021	Feb 2021	March 2021
UK	8.0%	9.2%	10.2%
London	5.6%	4.4%	3.7%

 

The London market is essentially running at two speeds; Inner London
boroughs which have a high concentration of flats have been languishing as
buyers push further out in search of greater space and better value for money,
while the outer London boroughs which feature a higher proportion of detached
housing with gardens have experienced stronger growth.

 

The ONS data for London revealed that in the year to March 2021, the
price growth for flats was just 1%, lagging well behind terraced properties
(7.2%), semi-detached (6.2%) and detached (5.3%).

 

Government Stimulus Programs: Will the Boom turn into a Bust?

One of strongest triggers which sent sales activity into a frenzy was
the SDLT holiday, providing up to £15,000 tax relief on a property purchase of
£500,000. With the UK having experienced three lockdowns due to the pandemic,
the government had no choice but to extend the furlough program and other
initiatives supporting businesses and the self-employed. Despite the SDLT
holiday due to expire at the end of March 2021, the housing industry
successfully lobbied the government to extend this deadline to September on the
grounds that the long delays in buyers reaching completion would result in
thousands missing out on the tax saving.

As history has shown, government intervention in the
housing market has often led to distortions in the balance between supply and
demand leadings to booms and then busts. The valid concern is whether this time
will be any different.

 

A Sharp Rebound in Economic Performance

Whilst the 2020 real-estate bull market gave every impression of being
unhinged from the broader economy due to government stimulus efforts, this
state of affairs is unlikely to prevail over the longer term. The UK economy is
highly dependent upon consumer spending and, with the easing of lockdown
restrictions, high frequency indicators of economic activity including motor
vehicle traffic, retail footfall and restaurant bookings have increased.[1]

 

The reason for this sharp rebound in economic activity and consumer
confidence is down to one key factor: the success of the UK government’s
vaccination program. By early June more than 75% of the national population had
received at least their first jab. This encouraged the BoE to upgrade its 2021
GDP forecast to 7.25% in early May, a substantive increase on the 5% it had
forecast just three months earlier. With the economy performing better than
expected, GDP in April was 3.7% below the pre-pandemic level in February 2020,
the smallest gap since Covid-19 reached the UK.

 

Consumer Sentiment and Market Shifts

The first quarter saw annual house price growth surge to a seven year
high. Knight Frank established that in the month of March a string of decade-long
records were broken, including the highest number of new prospective buyers
registering, the highest number of offers accepted, and the fourth highest
month for property viewings.

 

Aside from the government stimulus, the reasons for the market hitting
these 10-year highs can be traced back to consumers’ changing preferences. Out
of the lockdown experience emerged the key home-buyer preferences for size, space
and mobility – larger homes, outdoor space, and increased mobility as the daily
office commute became redundant. The experience of home becoming a place of
work, home-schooling, and exercise prompted residents in central London to
migrate to outer boroughs or the home counties in search of an enhanced
lifestyle and better value for money.

 

Market Direction and Best Buying Opportunities

With optimism that the worst of the pandemic in the UK is behind, UK
Holmes reports that the economy is on track to rebound sharply. A survey of
leading economists by Bloomberg forecast that the UK will lead the recovery
amongst major European nations with its fastest growth in almost half a
century.

 

One of the biggest issues influencing the direction of the London
property market is the tapering and withdrawal of the SDLT Holiday, which up to
this point has driven demand as buyers rushed to beat the deadline. Should this
demand collapse at the point where increased supply is coming onto the market,
there is the very real risk that prices will fall.

 

UK Holmes believes that the next 6-12 months will offer astute investors
in London property excellent buying opportunities. The inner-city areas are
being reinvigorated by strong growth in the retail and hospitality sectors and
offices are reopening. The market for flats, heavily depressed over the past 12
months, won’t remain in the doldrums permanently. However, UK Holmes is also
firmly of the opinion market volatility
will remain for some time. This will cause buyer’s remorse for those who fail
to fully understand the fast-evolving market dynamics.