Since we came out of lockdown the property market in the UK has completely defied even the most expert predictions.
A week or two into the first lockdown the voice of authority, Savills (a nationwide, very well-respected estate agent), wheeled out their top statistician who gave all their opinions on the future of the property market due to the pandemic.
Their multitude of graphs and stacks of historical data predicted that the property market would, by the end of December 2020, be in a recession with property prices dropping between 5-15%
They predicted a severe dip, then a two year climb back and being completely back to normal in 5 years - by 2025.
As we know, that didn’t happen, so why were their predictions wrong? I believe it was a cumulative effect of various factors.
At the end of January 2021, Brexit was confirmed without all the hoped for agreements. Generally, the opinion during the 4 year + period between the vote and eventually leaving was that there would be a property crash as soon as we left the EU.
Investors decided that it was a good strategy to sit tight, wait for prices to drop and then sweep up the good deals. That meant a whole host of people were keeping their powder dry with a view to a kill when Brexit completed. All that money sitting around waiting, then we’re in lockdown 6 weeks after Brexit was confirmed. The property crash didn’t happen so investors started spending their hoarded cash anyway,
Working from home
Now pretty much everyone who could was working from home (or furloughed) and many businesses realised that things worked rather well without people in the office 5 days a week.
Lots of corporates were saying, ‘when we get back to normal … we’re not going to keep everyone in the office full time.’ They began to see the benefits of less expensive city centre office space, less subsidised travel or loans for season tickets and generally an improvement in their bottom line.
On the other side of this coin the city commuter also had a revelation. They were living on the outskirts of a city, to make commuting to work 5 days a week manageable and now decided that fewer days commuting meant they could feasibly live further away from the office. If they only had to get to the office a couple of days a week a longer commute was doable. Cheaper property prices, better quality of life, etc. etc.
Provincial estate agents had their best year ever in 2020; city centre estate agents significantly quieter.
Now everyone was stuck at home - no commuting to work, often less work (or no work due to furlough), nowhere to go out to during leisure time - so what did they do? Watch daytime telly - where they got hooked on the many property programmes like Homes under the Hammer, Escape to the Country and lots more.
People who had never been into property before consumed all this property ‘knowledge’ and thought ‘how hard can that be?’ So those with a nest egg got out and bought property. Let’s not think about how successful their money-making aspirations were right now! However, they contributed to the property market staying vibrant.
As a broker we noticed a fragmented reaction to first lockdown; from shutting the doors only planning to come back when it’s over to the more savvy and entrepreneurial property businesses who put some thought into how to keep their business going.
It was not unusual for solicitors, who are an essential part of the property purchasing chain, to make the excuse that ‘all our files are in the office, we can’t go into the office, so we can’t do anything’.
Lenders were often not fully staffed due to people off work with COVID, people isolating because they’d been in contact with someone with COVID, and people who were furloughed. Plus the staff who were in were focused on dealing with people applying for mortgage holidays.
Mortgage lenders have still not recovered, which means that there are longer processing times for mortgages
The smart estate agents started working on virtual viewings. Not only were the property owners happier if an endless stream of people weren’t tramping through their home, but it allowed people looking for property to view many properties in less time.
Stamp duty holiday
I don’t know what the Treasury’s thinking was when they declared a stamp duty holiday for the first £500K of a property purchase price on a main residence. My guess is that they saw the economic slump coming and thought ‘the last thing we need on top of this is a property recession too.’ Perhaps they thought that they could push the property price drop back a couple of years so it wouldn’t all happen at once. They were half right - the economy had the biggest slump in 300 years between March-June 2020 with the GDP dropping by about 20%.
They did successfully manage to bamboozle thousands of home owners who decided to take advantage of the stamp duty holiday and started looking for a new residence. If they were purchasing a property worth £500K, they would save £10K in stamp duty - but, because property prices went up, they were probably paying between £30-50K more for the property than they would have done. The mathematical logic doesn’t work!
Now we’re out of lockdown the UK is projected to have the highest growth of all the industrialised nations in 2021, on a par with the US.
If that was the Treasury’s objective; it clearly worked. The stamp duty holiday resulted in a tsunami of property transactions from mid-2020 through to mid-2021.
The good news is that the property market is still strong. Property is a good investment - in the hands of people who have taken the time to understand how it works and build their skills to get the best return on their investment.
You can learn more here: