Although the Christmas decorations are already going up in many places it’s still a little early to wish everyone a happy new year. But it’s never too early for those in the property business to look forward and try to understand what might happen to the market in the coming year.
First let’s rewind a little. In 2019 the property market looked like it might be running out of steam, with some experts even predicting a crash. Then came the December 2019 General Election offering greater political stability and promises (promises) of a smooth Brexit which gave the property market a bit of a shot in the arm.
The start of the Coronavirus pandemic in the spring put the market on hold for a while and, for several weeks, it seemed likely that the property market would crash. In actual fact, the absolute reverse happened! There’s been a property market ‘mini boom’ across most of the country since, though perhaps less marked in London. Property prices across many parts of the country reached their highest ever this autumn.
So now let’s have a look at a few things that could influence the property market in the year ahead.
Covid-19 is of course a very large elephant in the room here. How the market is affected is bound to depend on the course of the pandemic, and more to the point the Government handling of it, especially with regards to the employment market and the economy.
The latest incarnation of the furlough scheme ends in March 2021. It is far too early to say what if anything might happen then. The scheme was due to end last October and, although it was extended, many jobs were lost before the extension was announced.
The current Stamp Duty holiday is also due to end on 31 March. Experts are already warning that some sales which have already been agreed will not be completed before the deadline. Whether it is extended, or if any special contingency arrangements are made, will likely have an impact on the market.
It has recently been announced that the Chancellor’s next Budget will be in March 2021. There are bound to be some big announcements here, and what is or might be announced could have implications for the property market during the course of next year.
It’s true to say that recent house price rises have probably been supported by mortgage interest rates at record lows. Interest rates could even go negative in 2021. But that’s unlikely to make mortgages cheaper. In fact some reports suggest mortgages are becoming harder to get, which may affect the market.
What is happening to the economy does of course have a major bearing on the future of the property market. Current predictions for the economy are using figures of a magnitude that has not been seen before in recent times. The World Economic Outlook from the IMF says that the UK economy will decline 9.8% this year. Their predicted 5.9% growth next year still means a major contraction over the period overall.
Then of course there is the Brexit issue. This something which almost seems to have been forgotten in the Coronavirus crisis but it almost certain to have an impact during 2021. As nobody knows what will happen (at the time of writing) few are willing to predict what it might do to the property market.
Consumer confidence has also proved critical to the fortunes of the property market over the years. Perceptions about how affordable a new home is, or whether prices will rise or fall, often guide would-be buyer’s plans more than economic statistics. Job insecurity and rising employment have historically been a major dampener on the property market, although for some reason have had the reverse effect this time.
To throw yet another element into what is becoming a very odd equation, the news that a Covid-19 vaccine is apparently on the horizon could give a boost to confidence as we go into 2021. There might appear to be no connection, but if people are happy to take on major commitments in the jaws of a major pandemic, what might they be willing to do when a solution seems to be around the corner?
Lastly, let’s take a look at what a selection of experts are predicting for the property market in 2021:
A pretty gloomy forecast from The Centre for Economics and Business Research (CEBR) suggests the recent rise in house prices is an anomaly. It forecasts house prices will fall by almost 14% next year once the Government’s temporary cut in stamp duty ends and the economic impact of coronavirus filters through to the property market.
Hamptons International Housing Market Forecasts (HIHMF) suggests a period of uncertainty lays ahead. However, they feel house prices will be around the same level at the end of 2021 as they are now.
PwC put forward two different scenarios. They suggest that if there is a relatively limited second peak of Covid-19 prices will rise by 1% in 2021. However, if there is a further serious outbreak price could fall by 7% next year. They believe that if there is no deal with the EU on a future trading relationship the impact on the market could be serious in some parts of the country, but they do not forecast by how much.
So what will happen in the property market in 2021? The fact is that the property market has always been subject to many variables. But at present, there are more variables and more variable variables than ever before! The truth, therefore, is that it really is impossible to say. Those in the property industry would probably be well advised to expect the unexpected.
