How Have Brexit and Covid Impacted the UK Housing Market?

7 Jan

Brexit and Coronavirus, two very different but equally seismic issues, have shaken up the UK housing market. Both have at times diminished confidence in the economy, setting house prices on a lower trajectory than was predicted earlier in the decade. Coronavirus lockdowns have changed how we work and what we expect from our homes, something that will have long-reaching effects on the market. On the flip side, we won’t be working from home forever and demand for homes is consistently stronger than supply, making it likely the market will rebalance in the coming years.

House Prices Have Effectively Decreased Since 2016

In June 2016, when Britain voted to leave the European Union, the London property market was full of confidence. The average price of a residential property in London was £468,120 (figure from Land Registry).

5 years on and the average value is only at £490,000, equating to an increase of 5%. However, taking into account that inflation has averaged at around 2%pa, the real value is actually lower than 5 years ago.

This is only the second time since the early nineties that the London market has performed so poorly over such a consistent period.

This poor performance is attributed to a number of factors over the last 5 years but the key ones are:

depressed foreign investment due to both Brexit uncertainty and the ‘Jeremy Corbyn effect’
2016/2017 fears about future unemployment due to Brexit
2017/2018 job uncertainty and unemployment concerns led mortgage providers to waver and demand higher cash deposits along with less attractive mortgage products coming available to market
2019 saw property values drop slightly before starting their recovery again
Boris Johnson’s election victory saw the market reach its peak in January 2020
2020/21 saw many Londoners re-evaluating their lifestyles due to a sequence of lockdowns that forced the nation to stay behind closed doors
2021 the pandemic resulted in strong demand either for countryside dwellings as entire families relocated away from the city centre or flexible city accommodation with suitable workspace. The demand for outside space, thanks to forced house arrest, was unprecedentedly strong

Priorities Have Changed

We have all spent a lot of time at home recently, which means we can’t escape the shortcomings in our current accommodation. We are more accustomed to working from home, and are less likely to feel locked into the commuter belt. Impacts on the market include:

High demand for accommodation with a Working from Home area, be that a study/box room or a clearly defined space in the living room
High demand for property near to transport links (easily accessible from new country abodes)
Commuter and rural areas securing high premiums the knock on effects of this reaching as far afield as 2.5 hours from London
High demand for property with direct access to some sort of outside space

Working From Home Won’t Last Forever

2020/early/mid 2021 saw a suppressed central London rental market as families, students, businesses and internationals relocated to the country or abroad. The forecast for the end of 2021 into 2022 is increased demand for rental accommodation in central London as workers and students return to the city and international demand outstrips supply.

There may be increased demand for 1 or 2 bed flats either for rental or purchase by those who relocated and bought in the country but now require a central London residence to accommodate hybrid working.

As a result:

Houses in prime central London are consistently securing rents and incentives over and above advertised rental figures
Low mortgage rates continue to attract property investment
Investors are seeking new investment opportunities due to the volatility of stocks and shares

Demand For Homes Continues to Outstrip Supply

The rental market is now extremely competitive. Severe lack of stock is expected to underpin rental growth in the short term. Recent data has been published stating that London needs to double its rate of housebuilding if it is to adequately house its growing population as demand outstrips supply:

Over Summer – Autumn 2021, rents across prime London have increased by 2.9%, the strongest quarterly growth for over 10 years
Houses are currently showing the highest levels of annual rental growth but pied a terres and 1 or 2 bed apartments have seen rents bounce by nearly 5% to end 2021.
94% of agents in London are reporting a lack of stock which is pushing rental values up and this is across all of London. Shortage of stock means that tenants are having to compromise on location and quality of accommodation.

5 year compound rental forecasts:

Prime London: 18.7%

Prime Commuter Zone: 13%

In 2016, c. 28% of all households in London lived in the private rented sector. By 2025, this figure is projected to rise to just under 40%

Conclusion

Over the last 5 years the housing market has taken a hit, but continued demand for homes looks as if it will rebalance the market in the coming months. With so much to consider, it is more important than ever to enlist an expert to help you on your property investment journey.