As the UK property market sets its sights on recovery from Covid-19, Savills has made some predictions about what the coming years could bring, including strong house price growth in north-west England.
Covid-19 came out of nowhere and caused major disruption to every sector of the UK economy – the housing market included – during the first half of 2020.
Property transactions practically ground to a halt as the country entered lockdown to tackle the spread of the virus.
Now, however, steps are being taken to restart the economy and life is slowly but surely starting to get back to normal, albeit with some important changes to how people go about their daily lives.
As the country gradually recovers from the worst of the crisis, thoughts will be turning to the future. What could the rest of 2020 and the coming years hold for the property market?
According to Savills, UK real estate has the underlying strength to recover from the inevitable impact of the pandemic this year. The firm said, despite the current disruption, it’s standing by its five-year forecasts.
The company’s long-term outlook paints an encouraging picture for north-west England in particular.
Prices set to rebound
Having previously forecast annual price growth of 1% in the mainstream property market in 2020, Savills is now predicting a contraction of 7.5% this year.
In 2021, however, the firm expects prices to return to an annual growth rate of 5% (compared to its previous projection of 4.5%), followed by an 8% increase in 2022 (up from 3% previously).
Owners of property in key locations in north-west England, could benefit from some of the strongest price trends in the coming years, according to the research. This region is expected to witness growth of 8.5% in 2021 and 9% in 2022.
As far as the five-year forecast is concerned, the north-west is ahead of the rest of the UK, with prices set to rise by 24% up to 2024.
- North-west – 24.1%
- Yorkshire and the Humber – 21.1%
- Scotland – 20.1%
- North-east – 19.9%
- East Midlands – 18.4%
- West Midlands – 18.3%
- Wales – 17.7%
- South-west – 12.9%
- South-east and east – 10.7%
- London – 4%
The study noted there is capacity for a “fairly significant bounce” in house prices over the next five years, but also stressed that growth will depend on consumer, business and lender confidence improving.
Encouragingly for buy-to-let property owners, Savills noted that rents tend to be more resilient than capital values during times of economic difficulty. In the wake of the 2008 crisis for example, rents fell by only 2%, while house prices dropped by 18%.
The real estate services firm’s prediction is that rents will continue to show this resistance to adversity in 2020 and in the coming years, although areas that rely on international tenants and students could experience more pressure than other locations.
Looking at the long-term picture, the figures suggest rents will rise by 13.6% up to the end of 2024, down slightly from the previously predicted 15.4%.
“Yields will fluctuate over the short term. This could create attractive opportunities for investors willing to hold for the long term,” Savills noted.
While the Covid crisis has undeniably created challenges in the private rented sector – much like every other segment of the property market – recent research has indicated there is no evictions as a result of the pandemic.
A survey of more than 2,000 tenants across England and Wales by the National Residential Landlords Association showed 90% of respondents had been paying their rent as usual during the crisis, while 84% had not needed to approach their landlord for support.
General trends in employment and the economy will always be a consideration for buy-to-let investors who want to feel confident there will be steady demand for rental property in the area where they’re buying.
Savills’ housing market predictions are based on economic forecasts from Oxford Economics, which suggest that GDP will fall by 2% in Q1 and 14% in Q2, followed by growth rebounds of 6.5% in the third quarter and 4.7% in Q4.
On the jobs front, unemployment is expected to reach a peak of 6.5% in 2020 before falling below 4% by 2022 – a lower rate than that recorded in the five years following the global financial crisis.
The impact of Covid-19 on the housing market is underlined by data from HM Revenue & Customs, which shows there were only 38,000 property transactions in April – 55% below the five-year average – and most of these would have exchanged before lockdown even started.
Since the first steps to reopen the housing sector in England were taken on May 13th, there have been signs of a release of pent-up demand. Hometrack data showed an 88% increase in buyer demand immediately after the reopening, surpassing pre-lockdown levels.
Savills has predicted that, while completed transactions will be low for the second quarter of 2020 – just 25% of the five-year average – there is a good chance of a recovery in the second half of the year.
“The reopening of the housing market in England for viewings and transactions on May 13th, together with a pick up in sales agreed since then, gives us confidence that activity should be able to recover gradually over the second half of the year,” the firm said.
Furthermore, the report forecasts a return to normal transaction levels by the third quarter of 2021, followed by a spike in activity as the market steadily responds to the demand that built up during this year’s lockdown.
For individuals considering property investment opportunities in the UK this year and beyond, there are clear indications – based on current trends and British property’s track record for resilience – that the market will recover confidently from the Covid-19 crisis.