What will 2021 bring for the UK property market?
Tax changes and the withdrawal of support measures mean the post-Covid ‘normal’ will only begin to emerge later next year
4 minutes to read
It is fair to assume that the first four months of 2021 will bear little resemblance to the rest of the year.
Such a diverse range of factors will pull the UK property market in different directions early next year that buyers and sellers are likely to respond in an equally wide-ranging way.
Any useful assessment of what comes next can take place later in the year. The autumn selling season will provide early clues as to what the post-Covid ‘normal’ looks like.
So, what are the factors to consider?
First, let’s look first at the subject that made a late bid to become the biggest risk for the UK market in 2020: Brexit.
Reading anything meaningful into the final days of negotiations is futile. A certain level of theatrics surrounds the talks and sentiment will swing multiple times within the same 24-hour news cycle.
It remains in the economic interest of both sides to reach an agreement against the backdrop of a global pandemic. Neither is it disadvantageous for either side to be seen negotiating hard down to the wire.
If a deal is struck, the pound will rise and find its new trading range. It will also boost sentiment more widely. Many had tuned out the Brexit risk but will still be relieved to know isn’t there anymore. If a deal is not struck, the extent of any acrimony will be a key factor in determining how fruitful any future dialogue is between the UK and EU.
Overseas buyers may face the twin effect of a stronger pound and higher rates of stamp duty from April due to the introduction of a 2% surcharge. Will that be enough to slow the inevitable release of pent-up demand in prime London and Home Counties markets after international travel restrictions are relaxed? To a limited degree, possibly. The surcharge is likely to act as a brake on price inflation and be used as a negotiating tool by international buyers in Q2 next year.
As if we hadn’t had enough of clocks running down in 2020, the government’s furlough scheme (April) and the stamp duty holiday (March) are due to expire in the early part of next year.
There are many questions surrounding the somewhat unknowable effect of ending the furlough scheme. What we know is that the events of 2020 will produce a mixture of winners and losers, something not apparent when looking at the economy through the lens of the High Street or the hospitality industry. Finding reference points from the past is equally tricky as we explore in more detail here.
Overall, the impact of the scheme ending is unlikely to produce a cliff-edge moment for the property market. Any discomfort as the economy re-shapes could be more gradual in terms of its impact on the ability and desire to buy a home.
More broadly, demand for property in the suburbs and country will remain strong. Even against the backdrop a vaccine roll-out programme, viewing and new buyer registration figures at the end of 2020 indicate the ‘escape to the country’ trend isn’t going away. The memory of what could be a 12-month series of lockdowns will ensure it remains a relevant consideration, even if it’s longer-term impact may not be fundamentally transformative.
That won’t narrow the scope for contrarian bets, including on central London flats, especially as international travel restrictions are relaxed and overseas demand picks up.
Unlike the end of furlough, the termination of the stamp duty holiday does represent a cliff-edge moment. How much this affects transaction numbers largely comes down to the simple question of ‘how important is a £15,000 saving?’ In many cases the answer will be ‘very important’ and price negotiations may intensify if the deadline looks like it may be missed.
What’s certain is that the pressure on the government to extend or taper the holiday will increase in the early months of next year. Examples of deals falling through because they won’t be completed before 31 March will not be difficult for the media to find. Indeed, expect new prospective buyer registrations to surge in January as the Christmas break means more people will have had time to reflect on 2020 and attempt to act before the end of the SDLT holiday.
Whether the government prolongs the holiday may come down the economic data in Q1 and whether an extension is politically expedient or will boost the wider economy. Extending the scheme purely because it is the victim of its own success is an argument unlikely to gain much traction.
Either way, it has highlighted the unsettling and distortive effect of systematic tax changes on the housing market as well as the need to speed up a process that can too easily get bogged down in physical paperwork.
Lastly and most importantly, the vaccine roll-out will gather pace exponentially next year. The background noise of Brexit could be replaced by a steady flow of numbers informing us how many people have had the jab. There won’t be a single moment when sentiment turns more positive and buyers and sellers decide it is a good time to act, instead expect Covid-19 to be gradually tuned out.