UK property – primed for a great 2021?

Paresh Raja, MFS

By Paresh Raja (pictured), CEO of Market Financial Solutions – After such an unforgettable year as 2020, one can be forgiven for hoping that 2021 remains largely uneventful. But is it realistic to expect a return to relative normality in the year ahead?

The answer, unfortunately, remains unclear. Yet while fighting Covid-19 lies at the top of the government’s list of priorities, it is possible that the end of the pandemic could now be in sight. The gradual rollout of vaccines across the UK suggests that we may approach majority immunity to the virus throughout the UK population soon. 

When the virus has been defeated though, what will the ‘new normal’ look like? How will markets and industries adapt to the post-Covid era, as financial support from central government abides? Although commentators remain divided on the answers to these questions; what I’m most interested in is how the UK’s property market will fare in the upcoming months.

Heralded as the stand-out economic success story of the pandemic, the British property market saw record figures recorded throughout 2020; with house price growth currently standing at a three-year-high. In fact, 2020 saw the fastest rise in house price growth witnessed since 2015; finally ending four years of property price stagnation.

This remarkable ability to provide impressive capital growth at a time of uncertainty reflects the advantages traditionally linked to property investment. But can this momentum be sustained in 2021? 

Coming to terms with the “new normal” 

Weeks into 2021, the UK’s third wave of COVID-19 infections has resulted in the country’s third national lockdown; imposed alongside its’ departure from the EU.  Although people are still permitted to move home during this period, such a state of affairs means the number of transactions recorded could slow down. 

However, looking ahead, I believe there are plenty of reasons to be optimistic about the UK’s property market in 2021. I am confident that the level of activity witnessed last year can be maintained, and there is a good chance that property price growth can be maintained in the coming months.

Such a confident perspective is shared by a number of 2021 property market forecasts from December 2020. For example, Rightmove currently predicts house price growth of 4 per cent during the next 12 months. They have outlined their reasoning in said forecast, describing how any negative developments that would normally incur house price devaluation will be easily outweighed by the increased level of buyer demand from those who have been homebound for the majority of last year. Having spoken to people who have been working from home since last March, such analysis sounds like it holds true.

Of course, there are still some potential roadblocks ahead. During 2020, financial instability as a result of Covid-19 caught mainstream lenders by surprise. As a result, many withdrew the majority of their financial products from the shelves and tightened the criteria for successful mortgage applications. 

As a result, there were numerous reports of increased rejections of mortgage applications; especially by first time buyers and those with small deposits. Because of this, prospective buyers may now need to seek out alternative lenders to ensure that they can complete on transactions.

Upcoming stamp duty land tax changes 

Of course, it’s possible that mainstream lenders will be able to properly adjust their mortgage applicant review processes soon enough. April 2021 may provide the exact period of respite needed for lenders, brokers, and property professionals to re-evaluate their operations to better fit the post-Covid era. The reason for this slowdown has to do with two upcoming changes to stamp duty land tax (SDLT), both of which are likely the facilitate a surge in buyer demand before their implementation.

The first is the end of the SDLT holiday, a key driver of property sector activity during 2020, on 31 March. The finalisation of this tax break, which provided buyers tax discounts of up to GBP15,000 on new property acquisitions, will undoubtedly facilitate a rush to complete on any property transaction before the policy ends. 

The second is the implementation of the 2 per cent overseas-buyer SDLT surcharge. After 1 April, any property transactions with buyers who aren’t UK residents will incur a 2 per cent extra SDLT fee. For foreign buyers, then, the aforementioned rush to finish property transactions before 31 March becomes doubly important. In turn, it also means prospective buyers need to engage with lenders who are able to arrange and deploy loans quickly. 

Overall, I’m optimistic that we’ll soon afterwards witness a continuation of the positive property price growth seen across 2020. If there are any lessons to be learnt from last year, it’s that you should never underestimate the ability of British real estate to make positive gains in uncertain times. 

Paresh Raja is the founder and CEO of Market Financial Solutions (MFS) – a London-based bridging loan provider. Prior to establishing MFS in 2006, Paresh worked as a senior professional consultant in one of the top five management consultancy firms, and also set up an independent investment group.

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