While the market was shut for eight weeks against the disorientating backdrop of a global pandemic, the prophecies about the housing market were understandably dire.
However, by last week, the Nationwide said that monthly house price growth had reached a 16-year high. That followed mortgage approval data from the Bank of England that looked distinctly like a V-shaped recovery. Furthermore, the number of exchanges outside of London was the 9th highest figure in 10 years in the last week of August.
While evidence of a recovery is building, valid warnings about the unknown economic impact of the pandemic remain. Some economists point to further job losses and financial pain as the furlough scheme is unwound. Others, however, point to an economy that is more adaptable than assumed and a narrative more complex than one of High Street closures and GDP numbers.
Against this backdrop, we have updated our UK property market forecasts.
While unemployment will rise and some form of second wave of Covid-19 will occur, our central scenario remains that double-digit price falls will not take place. The outlook has been further boosted by the announcement of a stamp duty holiday in July.
Other factors will keep upward pressure on prices. Political uncertainty and an ever-shifting tax landscape have kept house price inflation in check in recent years, widening the scope for prices to rise. Furthermore, ultra-low interest rates will limit the type of forced selling that pushed prices down following the global financial crisis.
The government also appears more interested in the wider economic benefits of a stamp duty holiday than the political benefits of successive hikes.
In short, this does not feel like a re-run of 2008/09 for the UK property market.
Based on a market analysis that includes listings data, we forecast UK property transactions will fall by 15% this year compared to 2019. The month-on-month decline has climbed from a low-point of -57% in April. August was unseasonably busy and the fourth quarter could benefit from a similar trend.
In relation to prices, the overall picture is broadly flat with slight upwards movement in areas with more outdoor space and greenery. We do not expect a material change to these trends during the rest of the year, with most of the annual decline having been priced in during the second quarter of the year.
Taking these current patterns of activity and long-term trends into account, we believe prime regional and mainstream UK markets will outperform prime central and outer London this year.
However, we expect prime London markets to outperform over the course of the next five years. Prices in prime central London have corrected by more than any other UK market over the last five years and we expect this to support growth in the medium term.
Demand will be further boosted by the removal of travel restrictions on international buyers as governments continue to tackle the pandemic, which may start to happen in the fourth quarter of this year. While price growth is likely to be curbed by a stamp duty surcharge for overseas buyers next year in PCL, we would expect stronger upwards pressure on prices to follow.
Prime outer London and prime regional markets will continue to benefit from stronger demand for outdoor space into 2021. Meanwhile, we expect price growth to remain more muted in UK mainstream markets, with the ending of the stamp duty holiday compounding any economic uncertainty as the longer-term financial impact of the pandemic becomes clearer.
Finally, we expect house price growth in the UK to become more subdued in 2024, the year of the next scheduled general election.
