The predictions for the property market weren’t good as we entered lockdown in March 2020.
Savills, who are a nationwide, very well-respected estate agent, presented their opinion on the future of the property market due to the pandemic. They predicted that the property market would suffer a severe dip by the end of December 2020, with property prices dropping between 5-15%. They estimated that this would be followed by a two year climb back and things would be back to normal by 2025.
Why were their predictions wrong? I believe various factors had an impact.
Brexit was confirmed without all the hoped for agreements at the end of January 2021. Most people in property, during the 4 year + period between the vote and eventually leaving, thought that there would be a property crash as soon as we left the EU.
Many investors thought it was a good strategy to wait for prices to drop and then sweep up the good deals. Then Brexit came and went followed quickly by the whole country being in lockdown. The property crash didn’t happen so investors started spending their hoarded cash anyway,
Lockdown meant everyone who could was working from home (or furloughed) and companies 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.
Time to spare
Now everyone was stuck at home - no commuting to work so more free time (especially if people were furloughed), nothing to do during that free time, as everything was shut and you can only watch so many boxed sets - so what did they do? They turned on the TV and got hooked on property programmes like Homes under the Hammer, Escape to the Country and many more.
People who had never been into property before thought ‘how hard can that be?’ Some of them went out and bought property - put in a tenant and watch the money roll in. Time will tell how successful that will be for them, but they made a big contribution to the vibrancy of the UK property market.
PropTech rules - or not?
As a broker we noticed a fragmented reaction to first lockdown; from property companies who shut the doors planning to come back when it was all over to the more savvy and entrepreneurial property businesses who took the glass half-full approach and looked for ways 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 had staff off work with COVID, staff isolating because they’d been in contact with someone with COVID, and some who were furloughed. Plus the staff who were working were focused on dealing with people applying for mortgage holidays.
Everything slowed down and, as a result there’s a backlog and mortgage lenders are still taking much longer to process mortgages
Some estate agents created more virtual viewings. This was a win all round with the property owners happy that potential buyers weren’t bringing the ‘plague’ into their home, people looking for property could view many properties in less time and the estate agent continued to sell properties.
The stamp duty holiday
I don’t know what the Treasury had in mind when they announced a stamp duty holiday for the first £500K purchase price on a main residence. I guess they saw an economic slump ahead and thought keeping the property market buoyant would mitigate that somewhat. Maybe they thought a potential drop in property prices could be delayed by a couple of years. They were partly right - between March-June 2020 the economy had the biggest slump in 300 years; the GDP dropped by about 20%.
Thousands of home owners jumped on the stamp duty holiday bandwagon, but clearly flunked maths. Purchasing a property worth £500K, saved £10K in stamp duty - but, due to demand property prices rose by about 10-15% more for the property - so they saved £10K, but spent £30-50K more!
Now we’re out of lockdown the future looks good. The UK is projected to have the highest growth of all the industrialised nations in 2021, putting us at the same level as the USA.
The stamp duty holiday resulted in a tsunami of property transactions from mid-2020 through to mid-2021 and it doesn’t look like property is headed for a slump.
Property is a still a smart investment - as long as you have taken the time to understand how it works and built your skills to get the best return on your investment.