What lies on the horizon for UK property investment?


Paresh Raja Market Financial Solutions

The UK stands at an economic and political precipice. Having now left the EU’s single market, and still reeling from the financial consequences of COVID-19, commentators have been scrambling to forecast how different markets will fare in 2021.

Of particular interest is the UK’s property market, which was one of the clear success stories of last year.

Amongst the turmoil witnessed in other markets due to the pandemic, 2020 actually saw the fastest rise in residential UK house prices since 2015; finally ending four years of Brexit-related price stagnation.

In fact, the opening three months of 2020 experienced the biggest Q1 surge in house price growth since 2002, according to Rightmove figures.

But can this positive momentum carry over to 2021? Or will the economic consequences of COVID-19 and the UK’s future relationship with the EU push people away from property investment?

An eventful start to the year

The opening weeks of 2021 have been nothing short of eventful. While coming to terms with our new relationship with the EU, the government also announced a third lockdown to curb the new spike in COVID-19 cases. That being said, people are still allowed to move houses during this period.

Given how buyers were still eager to complete on transactions even at the height of last year’s lockdowns – I do not feel any disruption caused by Brexit will put anyone off acquiring property.

The house price stagnation between 2016-2020 was rooted in Brexit uncertainty, more than anything; so, any developments after-the-fact won’t have the same fear-inducing effects on the market.

Looking to the coming 12 months, I am confident these events will not push investors away from property investment. This confidence is shared by Rightmove.

The agency currently predicts house price growth of 4% over the course of 2021.

The situation is not entirely rosy, however, as issues surrounding mortgage accessibility remain.

Mainstream lenders had to quickly re-assess their mortgage application review processes last year due to COVID-related economic uncertainty.

This move resulted in increased mortgage application rejections for first-time buyers and those with smaller deposits.

With banks taking a more risk averse approach, here at Market Financial Solutions (MFS) we noticed an increase in enquiries from brokers and buyers seeking fast and tailored finance solutions.

I expect demand for alternative finance products like bridging loans to remain strong in 2021 as banks and traditional lenders attempt to adjust to the “new normal.”

Stamp Duty changes

Much of the UK property industry’s performance last year can be attributed to the Stamp Duty Land Tax (SDLT) holiday, which provided homebuyers tax savings of up to £15,000 off the purchase of new homes in England and Northern Ireland.

This tax break is currently due to end on 31 March 2021, meaning that there will likely be a rush to complete on property transactions leading up to this date.

This surge will no-doubt be compounded by a simultaneous rush of international buyers eager to close on property purchases before April 1st, aiming to avoid the 2% overseas-buyer SDLT surcharge that becomes law on that date.

As we look to the coming 12 months, I believe any negative consequences of Brexit and COVID-19 will not enough to deter investment into UK real estate.

British property is an asset that is historically resilient and able to hold its value over the long-term. As such, I would expect demand to remain as investors seek out reliable assets in times of uncertainty.