Daniel Chard shares his 2021 Predictions for the Property Sector
The COVID-19 pandemic has had a huge impact on almost every sector in our world. Unemployment rates in general are rising, but it is the healthcare sector, the travel industry and the property market that have arguably seen the biggest changes since the downturn in our economy.
Considering this impact, what will the property market look like come 2021? Only time will tell, but experts within the field are having a good go at making their predictions. Daniel Chard from UK conveyancing solicitors Bird and Co shares his thoughts with Today’s Conveyancer.
Demand for Housing to Plateau
We’ve seen a huge uptake in demand for online conveyancing services since the market bounced back into action after our first lockdown. This came as no surprise after the dry spell during the usually heaving spring months, and Government incentives to reignite the market, such as the Stamp Duty Land Tax holiday in England. The question is, will this demand continue?
As a conveyancing solicitors’ firm, we are seeing no reduction in the demand for our services. Considering the back-up of demand during spring 2020, which came to its heights when the property market opened back up again at the beginning of summer, we don’t expect this demand to decrease much during the first few months of 2021.
Back Up of Buyers and Sellers
For starters, prospective buyers during this period have had months extra to save up for their home, potentially putting them on a better footing with their house deposit. What’s more, sellers who were looking to move to a new house this spring are likely keener than ever to get the process moving.
Stamp Duty Incentives
The Stamp Duty holiday, which has cut up-front house buying costs in England by up to £15,000, has also driven huge demand. For those looking to make their purchase before the Stamp Duty holiday cut-off on 31 March 2021, there is a risk of missing the deadline if their purchase is not already underway, possibly resulting in some buyers facing unexpected tax bills. So, those looking to beat the deadline should start looking for their next home sooner rather than later.
There are further Stamp Duty changes planned for the new year which could have the opposite effect on demand for property. We await full guidance, but it has been announced that overseas buyers will pay a surcharge of a further 2 percent from 1 April 2021.
We don’t know what effect this will have, but it could dissuade overseas buyers from investing in UK property, particularly if they are already concerned about other factors. This could culminate in a reduction in demand in certain areas for certain types of investment property. The most common places for these types of investors to look is usually London and other big cities, so these places may reveal a different story.
That said, with the boom we’ve seen this December, we can only expect demand to continue into early next year. However, if the Stamp Duty holiday is not extended, we expect the market to plateau as the year goes on. This will particularly be the case if the Coronavirus Job Retention Scheme (the Furlough Scheme) – which is also due to end in March 2021 – is not extended as it seems likely that jobs will take a hit and people may be unable or reluctant to move house.
House Prices to Increase
There’s been a lot of debate in recent months over whether house prices in the UK will increase or decrease in the new year. Those who argue for the latter believe that the end of the Stamp Duty holiday will cause prices to decrease. However, they argue that it isn’t really a crash, and more of a correction from the previous increase in prices.
Historically, a rise in unemployment rates has led to crashes in house prices. With the end of the Furlough Scheme hot on our heels, unemployment may skyrocket, leading to prices decreasing too.
Alternatively, those who predict house prices will increase think the decrease will come later on; perhaps in 2022 onwards. Instead, they believe that the peak of pricing will coincide with the usual boom in the housing market during the spring of 2021. However, they believe that the growth will be more subdued than expected, growing by around five percent in 2021 overall.
We are more inclined to agree with prices increasing throughout 2021 (albeit slower than during 2020). Even with the Stamp Duty holiday and Furlough Schemes ending early in the year, continued demand for housing during the spring months should keep the market thriving. Low interest rates and the availability of cheaper mortgages for some may also prop the market up in the second half of the year. However, after this initial demand, and the stabilisation of the market post-COVID, we predict a decrease after this year.
Further Struggles for First-Time Buyers
With the continued increase of prices, and the Stamp Duty holiday affecting second (and more) time buyers only, statistics are showing that (once again) home movers are overtaking first-time buyers with home purchases. We predict that struggles for those not yet on the property ladder will continue for a number of reasons.
For starters, rising house prices are making it nearly impossible for young people to scrape together a viable deposit. Right now, the Bank of England base rate is at a low 0.1 percent. Traditionally, low base rates mean cheaper mortgages. So, if the base rate stays low, this could be great for those already on certain types of mortgages, such as tracker mortgages, and home movers who already have a lot of equity so can stump up large deposits.
However, first-time buyers may not benefit from low interest rates. When COVID-19 initially hit the property market, lenders withdrew many, if not all, of their high loan-to-value (LTV) mortgage products, disproportionately affecting first-time buyers who typically need bigger mortgages.
Now the property market has bounced back somewhat, some lenders are starting to bring back a few high LTV products. However, interest rates for first-time buyers on these products appear to be increasing. This means that, overall, larger deposits are required to buy a home or buyers need to fulfil stricter affordability criteria – not necessarily achievable for many.
Couple this with tighter restrictions on those able to secure mortgages, it’s making it a tough mountain to climb.
If lenders continue restricting their high LTV products into 2021, together with tighter lending criteria, we can expect the disparity between home movers and first time buyers to continue expanding.
New Help-to-Buy Scheme Effects
The new government Help-to-Buy scheme is coming into play in 2021, replacing the existing equity loan scheme. This will continue to allow first-time buyers to take advantage of as much as a 20 percent loan (40 percent in London) on a new-build property. In this case, buyers pay a deposit of five percent or more, and arrange a mortgage of 25 percent or more to make up the rest. The main difference to the original equity loan scheme is there are new regional caps on the maximum amount first-time buyers can spend on their new home.
This looks great for first-time buyers, on the surface, however, new-build homes will continue to be the only kind of home eligible for Help-to-Buy and the country still has a serious lack of affordable housing. The government’s latest plans to relax planning requirements could see even fewer affordable homes being built from 2021.
Because of this, we predict that the Help-to-Buy scheme may not have the desired effect of getting first-time buyers on the ladder. Although it may have a positive impact, the existing problems detailed above are likely to halt any dramatic increase in buyers getting on the ladder.
Stamp Duty Holiday
To add to this, the Stamp Duty holiday has only benefitted those who are already on the property ladder. Because of this, those looking to move to a new house or to buy a second home have arguably been at an unfair advantage.
Although some may not get their homes in time for the Stamp Duty holiday cut-off, calls for an extension on the Stamp Duty holiday could be heeded. This will mean that second-time buyers will continue to pip first-time buyers to the post. Because of this, there’s simply not enough homes to go around.
We expect this struggle to continue into early 2021, especially if housing prices continue to increase. When we consider young people have been affected most dramatically by unemployment rates this year, the likelihood of them saving up to buy a home are slim. So, we can probably expect less demand from this sector of people in the coming year.
The Impact of Brexit
Finally, we can’t ignore the perpetual elephant in the room: Brexit. We have to wonder what impact this will have on peoples’ spending habits, perhaps making people more cautious. If anything, we think Brexit might add further pressure to the UK property market, as those looking to buy a second home may look into buying here, rather than abroad.
Some are also questioning whether EU citizens with UK mortgages may be forced to redeem their mortgage or sell up. However, we don’t think this will be the case. Although many banks are closing UK bank accounts held by EU citizens, existing mortgage accounts should be allowed to continue.
Predictions for the 2021 Property Sector Are Shaky…
As we’ve seen, there’s a huge amount of disagreement regarding the property sector come 2021. This is, quite possibly, one of the greatest times of uncertainty for a decade, which means the property market is very tricky to predict.
Only time will tell whether our predictions, or those of others, are correct. It all depends on how the government deals with the fallout of COVID-19 at the start of the new year. It also depends on unemployment rates and how quickly our economy recovers. For now, we simply have to take each day as it comes, and not rely too much on fluctuating house prices.