How has COVID-19 affected the future of property portfolios in the residential sector?

Savills has once again revised its outlook for the UK housing sector, looking at both short and long-term outcomes. Here’s what could happen to house prices, transaction levels and regional markets next. 

Economic stability plays a major role in what happens to the property sector, the report points out. Mortgage availability as well as buying power are all influenced by the state of the economy. However, the government stimulus of the stamp duty cut will hold up transaction numbers. For borrowers, the likelihood of the Bank of England increasing the base rate at least in the short term is slim, and this should keep mortgage rates down. This, as well as strong buyer appetite from both within and outside the UK, are expected to maintain house price growth.

flats - short term outlook

Short-term outlook

Over the last four months, the UK property market has experienced the most abrupt change in sentiment in its history. While the market was shut for eight weeks against the disorientating backdrop global pandemic, the prophecies about the housing market were understandably dire. However, by October, the Nationwide said that monthly house price growth had reached a 16-year high. That of a followed mortgage approval data from the Bank of England that looked distinctly towards a strong recovery. Furthermore, the number of exchanges outside of London was the 9th highest figure in 10 years in the last week of August. 

Also, according to Nationwide, UK house prices saw their biggest annual rise 2016. On average, values rose by 5% this September compared to September 2019. They increased by 0.9% every month, says the building society.

This, as well as RICS data showing high levels of buyer interest, means Savills is predicting 4% growth in house prices by the end of the year (from January). The figure is despite an “expected potential loss of momentum in the final quarter of the year given the end of furloughing and renewed Brexit uncertainty”. The Savills report adds that total transaction levels could be much higher than earlier predictions. Delays in conveyancing could also push completions into next year, keeping the momentum going.

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Five-year Forecast

Savills has also updated its predictions for the next five years in terms of house prices. Between 2020 and 2024, it expects property prices to increase by an accumulative 20.4%. 

On a year-by-year basis, Savills believes 2020 house prices will end the year 4% higher than at the start. Next year though, as the economic situation impacts the sector, it expects 0% growth overall. However, for 2022, the forecast rises to 4%, then 6.5% for 2023, and finally 4.5% for 2024. 

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