Resilience of the property market
Firstly, the onset of the stamp duty holiday acted as a catalyst for the impressive growth in the property market last year and the subsequent post-lockdown price boom. The government’s decision to enforce this nine-month break indicates the industry’s crucial role in the UK economy, as well as its determination to sustain the property market.
But with the stamp duty holiday concluding on March 31, will this growth be stunted? And more importantly, will the results of the pandemic finally catch up with the property market or, will our ‘new normal’ see the continuation of house moves?
Society’s confidence in the property market is at the root of its success, with both Brexit and a global pandemic having minimal impacts on the industry. While Brexit initially caused significant concerns for over 50% of businesses and the majority of society, SevenCapital research indicates that 58% of respondents are in the process of investing in property or plan to in the coming months.
It is the certainty of this investment asset that has contributed to the industry’s continued growth, and with the rollout of three Covid-19 vaccines and a promising post-Brexit Britain, the coming months are crucial.
So, how do these figures stack up?
Rental yields remain strong
When considering buy-to-let, the rental yield you will receive is arguably the most important metric to consider. Rental yields are determined by measuring monthly rental income against the overall value of the property, which vary significantly between regions.
Despite the average rental yield across the UK falling to 3.53%, many cities are ranking positively for rental yield growth in 2021, such as Birmingham, Manchester and Liverpool. The Midlands saw a consistent surge throughout the year, with the East Midlands sitting comfortably on 3.80%, while the rental yields across the West Midlands have grown to 3.85%.
Birmingham – also known as the UK’s second city – shows no sign of slowing down in the new year and beyond 2021, especially with the Commonwealth Games commencing in 2022. Not only can many regeneration schemes throughout the city be attributed to this upcoming event, but the additional opportunities for inward investment and continued tourism will further solidify the city’s positioning on the global stage.
Although the Midlands and many northern cities overcame the challenges of 2020, it could be argued the capital felt the repercussions of the pandemic the most, with the average rental yield for London left at 2.83%. The combination of national lockdowns and working from home requirements drastically changed the needs of tenants, many of whom allegedly took the opportunity to swap city living for more spacious apartments outside of the capital.
Nonetheless, the property market has demonstrated great resilience over the past 12 months, and with more cities now proving to be serious contenders, there is greater choice for prospective investors.
Property price outlook remains positive
In addition to rental yields, an awareness of the key trends in property prices is essential. For several years, cities such as Leeds, Birmingham and Liverpool have dominated the property market with competitive prices and promising growth. Much like their rental yields over the past five years, these prices are expected to grow – especially with the Covid vaccines in circulation - according to JLL forecasts.
The promise of three Covid-19 vaccines offers a glimpse of normality, for both society and the economy. The benefits of these will be two-fold, protecting people against the virus and stimulating economic growth for a faster recovery.
With this in mind, it is necessary to reflect on the anticipated property prices for UK hotspots in the coming years. Birmingham paves the way with the highest influx in prices for 2021-2025, with an impressive 19.5%, closely followed by Manchester at 18.5%.
Bristol is expected to endure a 16.5% rise in property prices during this period, due to London leavers opting for more affordable living, but within commutable distance of the capital. Amongst these up-and-coming cities is Glasgow, Liverpool and Leeds, averaging between 13.5% and 16% for price increases.
UK property has a reputation for being one of the most reliable investment assets, with a consistent incline in prices over the past 50 years - bar momentary dips in the market cycle. But with a post-lockdown boom seeing a 14.5% surge in prices, 2020 has continued to drive incredible price rises, even despite the external factors it has faced.
As well as emphasising the flexibility of the industry, this continuous growth in prices promotes a ‘time in the market’ perspective, as opposed to the conventional – ‘timing the market’ – approach. History shows, the longer you’re in the property market, the more you stand to make.
Interest rates are low
In addition to making history with property prices, the final quarter of 2020 also saw the most dramatic drop in interest rates for three centuries; as of December, the interest rate has been at its lowest figure of 0.1%. While the possibility of negative interest rates poses many possibilities, it provides an opportune time to invest.
Declining interest rates make affordable mortgages and loans more accessible for prospective investors, and with the minimal rates on savings accounts, there is now more incentive to splurge rather than save. And, when considered in conjunction with the 2021 forecast, the potential for the property market is limitless.
The stamp duty holiday undoubtedly contributed to the mini-boom in the housing market post-lockdown, and with just a couple of months left until its conclusion, there may still be time for prospective investors to take advantage. The stamp duty holiday means that until 31st March 2021, investors looking to purchase buy-to-let property will only pay 3% up to £500,000 – with no base rate.
Brexit is done
Amid the global pandemic was the Brexit transition period, where a free trade deal was finally agreed upon, making December 31 significant for two reasons: leaving 2020 and exiting the European Union (EU).
A post-Brexit Britain is one which invites many concerns, especially surrounding the property and financial markets. While we narrowly escaped with a trade deal, HSBC anticipates that the value of the pound will face a turbulent early 2021 but stabilise towards the end of the year. Concurrently, the pound-euro exchange rate is expected to fluctuate, with predictions of 1.09 for the majority of 2021.
But, what does Brexit mean for the property market? With a trade deal in place, it is unlikely that the property market will face any short-term effects, meaning prices should continue to rise as expected - albeit more modestly than over recent months. Brexit should also pose minimal threats for buy-to-let investors, and in some cases, could offer some relief.
Legislations that emerged under EU law could potentially be repealed, some of which made it difficult for landlords to obtain mortgages.
Reflecting on 2020, the property market has not only demonstrated its resilience, but its ability to adapt in the face of adversity. With many possibilities for 2021, from rising house prices and rental yields, to falling interest rates and a promising post-Brexit Britain, it is arguably an opportune time to invest in property.
To explore the 2021 property landscape further, download SevenCapital’s UK property investment guide here.
For more information on SevenCapital, visit SevenCapital.com.