A new year: what to look out for in the residential property market

By Harry Brown

If 2020 taught us anything, it was not to make predictions. At the start of 2021, as we are plunged into our third national lockdown in nine months, much of what will happen this year remains largely hard to predict.

One thing that is certain, however, and will be crucial to how the property market will perform, is the decisions the Government will make and the wider impact this will have on buyer trends and demands.

Key topics which have emanated from the pandemic, such as pent-up demand, the introduction of the Stamp Duty holiday, coupled with policy changes in the form of Brexit and changes to Help To Buy will remain central to how the residential property market performs this year.

The likes of EY, CBRE and Capital Economics are all predicting a fall of up to 5% in prices, whilst Halifax and JLL are slightly more optimistic, predicting a drop in prices around the 2% mark. Others such as housing portal Rightmove have taken a different view, predicting a 4% rise with established agents Savills and Knight Frank predicting a freeze and 1% rise, respectively.

Whilst impossible to be certain then, the general consensus in forecasts for 2021 is that house prices will certainly not see the rise they did in 2020 and the boom-and-bust nature of the housing market could be heading towards the bust phase of this cycle following the record price rise and sales seen last year.

Crucial to ascertaining which of these predictions will be correct is how generous the silver hand of Rishi Sunak is likely to be following a year of unprecedented spending. The most important of these policies is the impending Stamp Duty holiday which is set to end in March.

The policy has been universally embraced as it allowed buyers to save up to £15,000 on their new homes. When similar measures came to an end in 2008 and ran for a much shorter time and lower threshold, prices dropped drastically. This time round the government is in even more debt, almost £2 trillion and the threshold was raised to £500,000, so despite pressure from housing groups, the Chancellor may be reluctant to extend the scheme when he announces the first budget of 2021 on 3^rd March.

Pent-up demand and change in house buyers’ priorities prompted by the pandemic will also be crucial how the year will unfold. The most popular destination for buyers in 2020 was the Kent town of Sevenoaks, with 73,000 buyers leaving the capital in search of larger homes and greener living space. Will further lockdowns in 2021 see this trend continue? Or will the allure of city living make a comeback later in the year as more of the population get vaccinated and we begin to move back to some form of normal living?

Additionally, the impact of the Brexit deal that the government managed to thrash out on Christmas Eve will come into effect. Sterling is predicted to rise against the Euro, meaning we could see a potential uptick in British buyers overseas and in turn a fall in European buyers who were prominent in markets such as Prime Central London (PCL) in 2020.

Whilst the stronger Sterling could see a drop in European buyers, it may provide less competition from more traditional overseas markets from the Far East and Russia. However, the 2% surcharge on foreign buyers coming into effect from 1^st April could negatively impact on international buyers and in particular PCL.

Another key caveat will be the end of the furlough scheme. Unemployment could hit as high as 7.5pc once the scheme comes to an end.  As history has shown, when unemployment rises, the housing market tends to suffer. With more people out of work it creates uncertainty in the market and naturally leads to less people moving home.

It is clear there is a lot on the line for the housing market in 2021, and a lot of this will be dependent on government measures and how much the treasury wants to spend on keeping the market alive. Like most sectors the year ahead is incredibly volatile, and largely dependent on how the pandemic unfolds.

For now, we can expect a strong performance in Q1 from the residential housing market, but after that, we will have to wait and see what the government has in store, as well as how the pandemic has affected buyers’ appetites to truly get a better picture of what 2021 will look like.