The housing market has proved remarkably resilient in the face of the Covid-related disruption and buyer demand has been sustained at a high level since May 2020. Prices have also risen, reaching 4.7%growth across the UK in the year to September, the highest rate since October 2017.
London has experienced the same trends but with a notable divergence between the mainstream market and the higher value locations. Annual price growth across Greater London is around 4%, whereas prime London prices have fallen by 2%-4%.
Although the hangover from Covid-19 will be felt throughout 2021 and beyond, and despite the continuing Brexit uncertainties, the outlook for 2021 is positive:
• There is still a large number of buyers in the market with the financial strength and confidence to move
• Demand from buyers is running ahead of the supply of new properties coming to the market
• The economy is forecast to grow by 5.3%
• Covid vaccines are now being rolled out
• Brexit is unlikely to have much short term impact on the housing market
• Interest rates are set to remain low and the banks are still keen to lend
• The stamp duty holiday will continue to motivate buyers
• Foreign buyers are likely to return to the market in significant numbers
Assuming no further major systemic shocks, we anticipate that after an exceptional year of growth in 2020, prices growth across the UK will slow to 1.5%. We forecast house prices in Greater London to drop by 2% by the end of 2021, but central London and other high-value locations are likely to fare better, and we expect prices to stabilise and even rise by 2% in some high value London locations.
Looking at the rental market, we forecast that the rate of rental decline will slow in 2021 to 2% across Greater London and to 1%-2% in the higher value locations. Thereafter, assuming the economy recovers as forecast we expect annual rents to resume growth and to settle into a level slightly above inflation.