Author: Antony Antoniou

London property market predictions for 2021: six major threats identified from Brexit to a third wave of Covid

It’s hard to remember the last time London’s property market was poised quite so delicately on a knife edge. The capital’s property prices rose by almost 10 per cent in the year to November, according to the Office for National Statistics, while the number of homes sold was up on 2019’s figures.

This year, despite lockdown, demand for homes has held up. Rightmove recently reported its busiest-ever January. But with a series of hurdles to negotiate, is 2021 the right year to buy?

Threat 1: Stamp duty
The tax holiday encouraged buyers with a tax break of up to £15,000. But it is due to end on March 31, despite pressure on Chancellor Rishi Sunak to take a more tapered approach to help the thousands currently mid-purchase.

Winkworth chief executive Dominic Agace thinks the Government will compromise with a “short extension” to allow those already going through the buying process to benefit. “The Government has proven to be very pro-homeownership,” he said.

Threat 2: Mortgages
Lenders have struggled to cope with high demand for mortgages over the past year and thousands of deals are stuck in a massive backlog.

Rightmove says it now takes more than four months for a sale to go through, although choice is improving, crucially for buyers who only have a 10 per cent deposit. Interest rates are holding low and steady. The average interest on a two-year fixed mortgage is 2.52 per cent.

Lawrence Bowles, research analyst at Savills, believes that when the stamp duty holiday ends, first-time buyers will regain their “competitive advantage” because their pre-existing tax breaks will resume. “Banks may be launching more FTB-friendly products now anticipating them to make up a greater proportion of the market in the spring,” he said.

Threat 3: Brexit
Years of post-referendum uncertainty had a massive impact on consumer confidence, and the property market paid the price. Agace feels that now the deed has been done buyers and sellers feel reassured. “There is clearly a worry that the financial services industry will suffer job losses … affecting buyer demand in prime central London,” he said. “So far these concerns have been unfounded.”

Threat 4: Furlough
Buying agent Laura Johnstone, of London Property Search, believes the end of furlough in April will trigger a short-term increase in property for sale, as some of those out of work will have to sell or rent out, increasing supply and lowering prices.

Bowles is more optimistic. His take is that furlough will continue until lockdown restrictions are over. “This will allow businesses to bring their employees back to work,” he said.

In the longer term the Bank of England believes the economy could return to its pre-pandemic size early next year as those consumers who are still working begin spending the £125 billion in lockdown savings.

Threat 5: London exodus
The population of the capital is expected to decline for the first time in more than 30 years, according to PwC. It expects more than 300,000 people to leave London in 2021, and fewer people means less demand. Even with this, the capital’s population will still total 8.7 million. There has also been an exodus of over 1.3 million European workers, with over 700,000 leaving from London, so the true extent of the drop may be much higher.

As London reopens, Agace believes younger buyers and renters will return to the centre to “make up for lost time by enjoying all the bright lights a city has to offer”.

Threat 6: A third wave?
The evolution of the pandemic is, of course, the great unknown. Most of us are pinning our hopes on the vaccination programme to return the world to a relatively normal state by the summer.
But nobody truly knows how things will play out and even in a best-case scenario, the social and economic effects of Covid-19 will be felt for years to come.

On the other hand, the past year has made us all appreciate the importance of where we live more than ever and the deeply imprinted desire for homeownership will continue to drive demand — for those in a financial position to step on to or up the ladder.

Londoners trying to buy a property will save £168 million in tax if the Chancellor decides to extend the looming stamp duty holiday deadline. This equates to an average of £10,514 per household. New research by Rightmove, exclusive to Homes & Property, reveals that between 12,000 and 16,000 buyers could benefit if Rishi Sunak keeps the window open for just another six weeks.

The Chancellor is rumoured to be considering an extension to the tax break – a measure he announced in his emergency Covid-19 July budget last summer to boost demand in the midst of an economic crisis. On the flipside, if Sunak refuses to buckle under mounting pressure from the property industry then these householders – who are desperately trying to exchange and complete on their purchases by March 31 – will lose the stamp duty saving.

On homes worth less than £500,000 stamp duty during this July-to-March window has been completely scrapped. Above the £500,000 threshold it equates to a three per cent reduction.

On average in London buyers will save £10,514 on their move if they beat the deadline or he extends it.

What happens if Rishi Sunak doesn’t extend the stamp duty holiday?
Sellers could be left in the lurch this spring as prospective buyers who have failed to exchange and complete by the end of the stamp duty holiday walk away.

A perfect storm is brewing in the London housing market. Activity is expected to slow when the tax break ends on March 31 just as unemployment is forecast to peak following the end of the furlough scheme in April. In addition, agents warn, some buyers who miss the deadline will pull out.

“Families looking for more space to work-from-home and bigger (or any) garden for their children drove the surge of demand to move house in 2020 and into this year. The stamp duty saving covered the cost of moving for many of these households – who might also be on furlough.

“This incentive will be lost at the end of March, unless the Chancellor decides to extend the scheme, and I expect deals to collapse as a result,” says Becky Fatemi, founder of Rokstone Properties in Marylebone.

Tim Bannister, director at Rightmove agrees: “We know the stamp duty holiday was intended as a temporary stimulus for the market, but the delays we’ve seen in the home-moving process have been through no fault of the buyers and sellers who agreed a sale last year and are now trying to get their deals over the line.
“If there was a six week extension it should give the majority of the sales from last year the chance to complete.”

The tax break has created a log-jam for lenders, solicitors and agents as they try to process offers before March 31. “We should not underestimate the psychological pressure this deadline has put upon buyers and sellers at a time of great stress,” Fatemi adds.

The tax break ‘means more in London’
The tax holiday has been pivotal to propping up the expensive London housing market during the pandemic, explains Lawrence Bowles, analyst at Savills.

“The pressure to complete before the holiday ends is likely to be greatest where average values are around this level, such as in London,” he says.

“The impact of the stamp duty holiday has been more limited in lower value areas such as the North East of England where the stamp liability was low or nil to begin with, or in central London where the saving is small compared to the overall stamp duty bill.”

He argues that given the delays caused by the current lockdown there is “almost a stronger case for extending the deadline than introducing the tax break in the first place.”

London house prices rise as lockdown inspires home movers but sellers hold off for spring
The highest demand was for moves to outer London as buyers continue to seek space over location

Asking prices for homes in London rose this month, as the current lockdown has driven people’s desire to move.

However, home schooling and freezing weather conditions mean many people who are considering selling their home are waiting until the spring – as is typical in the property market.

After three consecutive months of falls, price tags increased three per cent in the capital from January to February, compared to a national average rise of 0.5 per cent.

Unsurprisingly, the average asking price is down very slightly in London (1.1 per cent) this February compared to the same month in 2020 – when the country was still in the throes of a property bounce following the General Election and before Covid-19 truly hit the UK.

Looking beyond the stamp duty holiday
Property industry expects predicted buyer demand to slow this February as purchasers would now miss the impending stamp duty holiday cut off. However, the Covid-19 pandemic and multiple lockdowns has highlighted the need to live in the right property and place, explained JLL’s head of research Nick Whitten.

“Despite the enormity of the virus and the economic headwinds it has created, London’s housing market has continued to show great resilience, and we expect that the market will perform better over the next five years than the underlying data would suggest,” he said.

“Ultimately, homes are more important to us than ever before. They are no longer just a place to sleep – they are places for us to work and play – and this will drive buyer behaviour in 2021 and beyond,” he added.

“Last year the market was unexpectedly buoyed by buyers’ determination to move and satisfy their new lockdown-induced housing needs. We may well be seeing a continuation of that this year,” said Rightmove’s Tim Bannister.

“Despite the imminent end of the stamp duty holiday (on 31 March), there are good reasons to come to market now, especially if selling a property suitable for a family,” he said.

However, due to the backlog of sales that are hurriedly being processed to complete before the stamp duty holiday deadline, it is taking 72 days on average to buy a home in London, up from 62 days last month, Rightmove’s monthly House Price Index showed. This is still 16 days quicker than in May.

Where are house prices rising most in London?
The Covid-19 pandemic has polarised performance across the different housing markets that make up London, as buyers chased more space and better value in the more affordable outer boroughs or the affluent super suburbs.

As a result asking prices have risen most steeply in Croydon, on the London-Surrey border, up 6.2 per cent this February compared to the same time last year, followed by Hackney (5.5 per cent) and Redbridge (5.2 per cent).

At the other end of the performance spectrum was Westminster where asking prices have been reduced by nearly 10 per cent over the course of the pandemic due to a lack of international buyers. Price tags also fell in Camden, Lambeth, Wandsworth, Tower Hamlets, Kensington and Chelsea, Islington, Hammersmith and Fulham, Kingston upon Thames and Brent.

House prices in the UK
Rightmove’s Bannister believes the high demand to change dwellings is set to continue for the rest of 2021.

“With the current speed of the vaccine roll-out, the new school year will hopefully be spent in schools and out of the home, but many of the other new needs for more space both indoors and out will remain.”

Of the 11 regions in the UK, seven saw a month-on-month rise in asking prices. After London the largest jumps were in the North West (up 2.5 per cent) and the North East (2.2 per cent). The biggest monthly fall was in the East Midlands (-2.1 per cent), followed by the West Midlands (1.4 per cent).