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Overcoming Corona – how will the virus affect the UK housing market?

UK house sales are predicted to decline by 38% on 2019 to 734,000 transactions for the full year (2020).

That is according to global property consultancy Knight Frank, which revised its short-term forecast for the UK’s property market based on the assumption that the current lockdown will remain in place through April and May, with a gradual lifting through June.

The firm also forecasts mainstream UK house prices to fall by 3% in 2020, with prices in prime central London remaining unchanged following a 25% repricing since 2014. It expects prices to recover sharply in 2021 – citing an 8% growth for prime central London prices for next year.

Liam Bailey, global head of research at Knight Frank, says that despite the underlying economic forecast pointing to a contradiction of gross domestic product (GDP) of 4% in 2020 and growth of 4.5% in 2021, the actual outturn will be determined by the timeframe imposed by the lockdown.

“The housing market was in a strong position in January and February. A sharp uptick in sales and price growth was seen across the UK, with even the prime central London market seeing a reversal of a five-year-long price decline,” he says.

“While we expect a revival in activity to continue, with volumes next year expected to be 18% above the level seen in 2019, this expansion in sales in 2021 will not fully offset the losses seen this year. Meaning that of the nearly 526,000 sales we expect to be ‘lost’ due to lockdown this year, less than half will be carried into 2021.”

In the lettings market, Knight Frank believes that the number of tenancies agreed in the prime markets across London and the Home Counties in 2020 will be around 25% below the five-year average.

Off the back of rental values in prime central London growing by 1.2%, and by 1.1% in prime outer London, in the year to March 2020, the firm predicts that values will remain flat over the course of 2020, with some upwards pressure returning in the second half of the year.

Bailey continues: “Once the current crisis passes and activity begins to resume, we have to expect weaker economic activity in the first half of 2020, the dislocation in the jobs market and weakened consumer sentiment will impact on prices, however, the relatively finite timespan of the crisis means declines will be limited.”

Focusing on the agricultural markets, based on the assumption that the farmland market will be back in business by the summer, Knight Frank forecasts land prices will fall during 2020 by just 2%, taking the average price of bare agricultural land to around £6,800.

According to Bailey, Covid-19 is unlikely to be the key driver behind the agricultural land market over the next few years. Instead, the impact on Brexit in terms of the trade deal struck with the EU – delayed or not – will play a key role, as well as the details of the government’s new environmental payment schemes.

“Surprisingly, the current crisis could indirectly support the land market if investors shift towards more tangible assets and greater emphasis is placed on improving food security and localising food chains,” he concludes.

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