What does 2020 have in store for the UK property market? By Paresh Raja
There’s no denying the fact that 2019 was a difficult period for the property market. The political deadlock in Westminster over how to address Brexit cultivated significant uncertainty. Those in business were thus hampered by the lack of clarity over the country’s direction.
The General Election in December 2019 provided a welcome change of pace; by delivering a majority government, it helped return the UK to semblance of normality. The London stock market responded as such, rising by £33 billion in the aftermath of Boris Johnson’s victory.
This ‘Boris Bounce’, as termed by the media, seems to have persisted. Whilst the resignation of Chancellor Sajid was a surprising blip, UK property has benefited from a majority government being
As with every sector of the economy, the financial implications of coronavirus will be felt throughout the property industry. Construction of new builds could be the most seriously affected, with large-scale development projects now facing potential labour shortages and supply chain issues as a result of the pandemic. While we can understand the short-term impact this is having on the property market, it is difficult to know what the long-term impact will be.
As demonstrated before, I am confident that property will be able to hold its value during this present period of economic volatility. If anything, we could also see investors taking advantage of the low-interest rate environment and investing in bricks and mortar due to the security and stability it has traditionally provided. Things will become clearer over the coming months.
With all the political turmoil of the past year, some more nuanced industry trends might have slipped under the radar. Perhaps the most interesting of these has been the rate of house price growth in areas outside of London.
Of course, the value of residential properties in the capital has remained extraordinarily high when compared to the rest of the country. In the borough of Newham, for example, house prices are now five times higher than what they were in 2015.
But according to Zoopla, those looking to high rates of capital growth should consider regional hotspots. For example, Zoopla estimates that house prices in the South East could rise by £35 per day on average.
Those in the West Midlands looks to be even more impressive, growing by up to £36. With the Government’s investment in major construction projects like HS2 and their promise to ‘level up’ all of the UK, property investors might therefore do well to consider opportunities further afield.
More broadly, house prices across the country are likely see an uptick. The Royal Institution of Chartered Surveyors suggests that the price of a house will increase by an average of two per cent this year, and potentially by 15.3 per cent over the next five years. Some conservative reports have predicted lower growth – one per cent in 2020 and 4.5 per cent in 2021. However, this would be still be a positive return to form; according to Nationwide, ending in October 2019, price growth remained below one per cent for 11 consecutive months.
The release of pent-up demand
It is crucial for those in the property sector to keep on top of market trends, and Market Financial Solutions (MFS) has a long track record of commissioned research to help with that. Our most recent report revealed that most (55 per cent) investors had delayed making an investment because of the Brexit negotiations.
This ‘wait and see’ approach was probably wise. Whilst the Brexit process was never going to be straightforward — indeed, it could be looked back on as one of the most labour-intensive administrative and diplomatic tasks ever attempted — it also compelled many investors to take a risk-aversive approach.
Thankfully, though, this could well be coming to an end. With the passing of the EU Withdrawal Bill, the likelihood of a controlled and considered Brexit grows ever more likely. With this, investors may well consider new investment prospects. Indeed, the aforementioned research conducted by MFS revealed that a majority of investors (51 per cent) are confident that transactions in property would increase after Brexit was concluded.
Of course, risk remains. The transition period is still ongoing and there are no cast-iron guarantees that a ‘No Deal’ Brexit is entirely off the table. However, that course of action has become increasingly unlikely.
Growing need for fast finance
With more transactions probable in 2020, this year could be characterised as a buyer’s market. What this means is that competition is also likely to rise. This could lead to more cases of gazumping in England and Wales – the practice of a seller accepting a higher offer after previously accepting one from a different buyer. According to MFS, almost a third (31 per cent) of UK homeowners have been gazumped over the past decade.
If this trend continues or worsens, having access to the finance needed to complete on a property deal will only increase in importance. That’s why we are likely to see a spike of interest in alternative finance products, such as bridging loans, whereby buyers can benefit from having access to the capital needed to confidently complete on a property deal.
2020 looks set to benefit from the political landscape in the same way that 2019 suffered from it. Prices have been bolstered by the new majority government, allowing those who kept their heads down last year to return to the market. As mentioned, there are still risks; the Brexit negotiations are entering a critical phase, not to mention the long-term impact coronavirus could have on the economy. However, I am cautiously optimistic that we will look back on 2020 10 months from now and see it as positive year for the property market.
Paresh Raja is the CEO of Market Financial Solutions. As one of the UK’s prominent independent bridging finance providers, Market Financial Solutions (MFS) provide a range of fast and flexible bridge loans to all its intermediaries and clients.
For more information, please see www.mfsuk.com