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By Alpa Bhakta

CEO, Butterfield Mortgages Ltd.


2021: is it the comeback year for PCL property?

It goes without saying that 2020 was an incredibly eventful year for us all. The Covid-19 pandemic and associated lockdowns meant that millions of people found themselves confined to their homes for months at a time, and economies worldwide stalled as a result.

This disruption was universal. However, certain sectors of the UK’s economy fared much better than others in quickly recuperating after the initial lockdown. The real estate sector in particular has fared especially well, managing to incur the fastest rise in residential house prices since 2015.

The underlying reasons for this success, primarily the UK government’s tax incentives designed to coax buyers back to the market, should be celebrated across our industry. What interests me, however, is how the prime central London (PCL) property has performed and what this could mean for the future performance of the market in 2021.


Stamp duty and Covid – a (small) window of opportunity

Given that London is currently at the centre of England’s 'third wave' of Covid-19, it’s understandable that we won’t be seeing particularly high PCL transactional figures at the beginning of this year. Nonetheless, two imminent changes to Stamp Duty Land Tax (SDLT) will soon, I believe, facilitate a spike in buyer demand when it comes to PCL residential real estate.

First, the end of the SDLT holiday is nigh. This tax relief measure was introduced in July in order to attract buyers back to the property market after lockdown and social distancing concerns had thwarted real estate activity. Contrary to what some commentators had predicted, this holiday was accessible to all potential buyers, whether UK residents or not, greatly expanding the policy’s accessibility.

Through offering this tax saving of up to £15,000, the government successfully triggered a flurry of property market activity. According to Nationwide house price indices, UK house prices managed to increase by 7.5% in 2020 as a result; the highest annual house price growth recorded since 2015.

Although some in the property industry have been calling for an extension to the policy, the holiday is currently due to expire on March 31 2021. Because of this, I foresee a substantial spike in property market activity during the weeks leading up to this key date from prospective buyers eager to complete transactions before this deadline.

The recently imposed lockdown may impose an obstacle for buyers who are keen to view these properties in person before committing to a sale. Estate agents, though, have become increasingly well-versed in providing virtual viewings throughout 2020. This comes as a relief to international buyers.

For the PCL market, this spike in buyer demand will come in conjunction with another change to SDLT that’s likely to have the same effect. Namely, the 2% SDLT foreign buyer surcharge due to come into effect on April 1 2021. With overseas buyers representing a massively disproportionate percentage of PCL buyers - responsible for 41% of all PCL transactions between January and November 2020 - this change marks another reason to ensure that any property transactions are completed before the beginning of April.

After these reforms have been implemented, I expect there will be a slight slowdown in the level of PCL transactional activity recorded. Property professionals have no need to fret, however, as a calmer period will allow brokers, lenders and estate agents the time they need to properly adjust their practices for the post-Covid era.

Brexiting all year long

As well as the ongoing pandemic, the UK is also having to deal with its new-found status outside of the European Union. Although a deal was secured at the last moment between the UK and the EU near the end of last year, there are still questions surrounding how it may affect property values and the financial services industry.

Brexit will naturally have some impact on buyer demand, and this will be revealed over the coming months as the market adjusts to the new conditions. I, for one, am interested to see how the value of the pound will be affected. For example, any potential devaluing of the pound as a result of further Brexit confusion may actually allow foreign buyers to acquire British property at a discount, as Knight Frank’s analysis from November 2020 shows.

Looking ahead, for the reasons outlined above, I’m confident about the PCL market’s performance in 2021. The prime property market has now begun to bounce back after a handful of stagnant years. Projections from Knight Frank and Savills certainly believe so, forecasting PCL house price growth of 4% in 2021, and 12.7 by 2024, respectively.

Of course, it’s impossible to rule out the possibility of unforeseen property market developments this year, but I’m excited to see what other trends will affect the PCL sector looking ahead. The positive prime property trends recorded in the final months of 2020 have spilled over into 2021, which is good news for the market at large.

*Alpa Bhakta is the CEO of Butterfield Mortgages Limited, a London-based prime property mortgage provider with a particular focus on the needs of UK and international HNWIs. The views expressed in the article are those of the author and do not necessarily reflect those of the Butterfield Group.


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