Monthly UK Residential Property Market Update January 2021

Despite new national lockdowns in England and Scotland, the UK residential property market finished 2020 strongly.

Nationwide reported annual house price growth hit a six-year high, up 7.3% in December compared with 6.5% in November. The lender added that house prices had ended 2020 5.3% above where they were in March, when the pandemic began.

Underlining the strength of the market in the final months of 2020, UK residential property transactions in December 2020 were 31.5% higher than December 2019, and 13.1% higher than November 2020.

The 129,400 transactions in December, which are based on provisional government data, capped a strong finish to the year, which saw transactions increase 8.6% on a monthly basis between October and November.

It caps a remarkable comeback after April’s low point, when transactions fell 57% year-on-year, during the eight -week closure of the property market during the first national lockdown.

It means residential property transactions fell by 11% on an annual basis in 2020, finishing at 1.04 million.

Halifax said annual house price growth was 6% in December, although it added that the monthly increase had slowed to 0.2% from 1% in November. The lender added that the imposition of the latest lockdowns and constraints this will place on the economic recovery means it expects prices to come under pressure in 2021.

According to RICS the residential market enjoyed a strong finish to the year with enquiries, sales and instructions still positive. However, the professional body said impetus appeared to be cooling. While house price inflation remained elevated outside of London in the final month of 2020, most surveyors responding to its December survey expect momentum behind house prices to fade in the next few months. 

For now, mortgage approvals for purchase remain at a 13-year high and this momentum should help support the residential market up until the stamp duty holiday deadline on the 31 March this year.

However, while property markets remain open during the latest national lockdowns, we have revised down our price forecasts for 2021 to reflect the impact of the new restrictions, as well as the short-term deterioration in the economic outlook.

Knight Frank now expects UK prices to be flat over the course of this year (the previous figure was +1%) and we have also removed a percentage point from our forecasts for prime central and prime outer London, as set out below.

While the third lockdown may remain in place until March and restrictions may tighten further, any evidence that the vaccination programme is limiting the impact of Covid-19 may begin to encourage more activity.

Read our revised Residential Property Forecasts in full.

Prime London Sales

The difference between the annual price change in prime central and prime outer London was at its widest this year in December as Brexit-related uncertainty increased in the run-up to the end of the transition period.

Average prices in PCL fell 4.3% during 2020, while the annual decline narrowed to 3.2% in POL after monthly growth of 0.1%. Prices in PCL fell 0.1% between November and December.

Ahead of the UK and EU striking a Brexit deal, the number of viewings in the week to 12 December in prime central London was 11% below the five-year average, due to the greater proportion of overseas buyers. Meanwhile, in prime outer London, the figure was 27% above the five-year average.

Prime London Sales Report: December 2020.

Prime London Lettings

Higher levels of supply and weaker demand continued to exert downwards pressure on rental values across prime London markets in the final month of the year. It meant that average rents finished the year down 11.9% in prime central London and 9.8% in prime outer London.

Supply has been pushed higher by a glut of short-term rental properties coming onto the long-let market due to the pandemic. Demand from international students and corporate tenants has also been weaker due to Covid-19 and associated international travel restrictions.

Prime London Lettings Report: December 2020.

Country Market

The country market in England recorded its best performance in more than six years driven by people’s desire for more space, greenery and a change in lifestyle in 2020. Property values in the Prime Country House Index finished the year up 4% on an annual basis. This demand saw the number of offers accepted outside London finish the year 37% ahead of the five-year average, with exchanges up 7%.

Demand for family homes supported growth in Scottish property values in 2020. With buyers from Scotland’s cities and from England looking for larger, family homes in response to the pandemic, the Scottish country market saw its best performance since June 2019 with prices up 0.8% on an annual basis in 2020.

The same driver saw property values in Edinburgh increase 1.7% in the three months to December 2020. This was the strongest fourth-quarter performance in more than ten years. It took the annual change in Edinburgh in 2020 to 5.8%.

Prime Country House Index Q4.

Prime Scottish Index Q4.

Edinburgh City Index.

If you wish to receive a hard copy of the Monthly Update, please email siobhan.leahy@knightfrank.com