Throughout the months of lockdown in the UK, there was widespread uncertainty amongst the British public and economists alike as to what the future held for the economy. Following the reopening of the UK marketplace, millions of Brits have feared the ‘inevitable’ economic doom which lays ahead for the country. On the contrary, as according to figures released by Nationwide this week, what appears inevitable is a property market boom!
House prices have remained steady since lockdown was lifted in the UK, and it appears the post-lockdown recovery has continued through August. To go one step further, house prices have actually encountered their highest monthly rise in more than 16 years, says the Nationwide. So much so, chief economist, Robert Gardner told the BBC: "House prices have now reversed the losses recorded in May and June and are at a new all-time high."
The Nationwide have described the recovery in housing market activity as “unexpectedly rapid”. This appears to be the case since house prices rose by an impressive 2% last month, the highest since as far back as February 2004 when prices rose by 2.7%. With the average house price now standing proud at £224,123, annual house price growth has now more than doubled to 3.7% from a steadier 1.5% in July.
Capital gains galore for UK property investors?
So far, in terms of the property market, the most negatively hit region of Covid-19 has undoubtedly been the South. It appears the worst is still to come for London landlords as the last breath of optimism for positive capital gains was snatched away earlier this week.
This comes as Chancellor of Exchequer Rishi Sunak is set to amend capital gains tax which would mean that landlords in the capital would have to pay almost £90,000 when selling their properties. If the Treasury’s proposed plans take course, property investors in London will have to pay an additional £26,480 in tax, according to researching from Hamptons International estate agents. This equates to 42% more than their previous bill of £62,640.
Proving an issue for landlords based namely in London and the South East where rental yields are the lowest in the UK and as a result, investment plans are structured around capital growth rather than annual income.
As for the rest of the UK, this acceleration in house prices has been explained by commentators as a result of buyers’ pent-up demand and Sunak’s move to raise the stamp duty threshold. The surge in demand was foreseen by mortgage lender Halifax months back suggesting a similar rise in prices over the summer. Jonathan Hopper, chief executive of Garrington Property Finders, said: “The stamp duty holiday has turned into a long summer staycation for the property market.”
Nationwide have gone on to suggest another contributor to house prices climbing by record highs is that many homeowners are wishing to move following the lockdown experience. “Behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as are sult of life in lockdown,” Nationwide said. So far, this has most notably taken place in the capital where residents are choosing to move away from their offices towards the North for a slice of the expense they currently shell out.
“Prices are rising fastest among coastal and country properties as buyers planning for a new work-life balance built around less commuting seek more green space, fresh air and better value,” Hopper told. Setback after setback for the South.
While the property markets stunning recovery continues to exceed expectations, it is important to remember that these monthly figures do not grasp the wider economic landscape. As businesses recoup limited resources by means of survival and as preparation for a potential second wave, unemployment is now starting to rise. Only once Sunak’s furlough scheme has been lifted will we see the true aftermath of Covid-19. As it stands, the economic outlook appears widely uncertain and only the final months of 2020 will tell how the economy is set to shape up.
As we have testified since back in March, this pandemic is nothing like the 2008 Financial crisis, so we don’t expect a major plummet in property value.
“The end of the furlough scheme is still two months away but that remains the biggest threat to the UK’s economic recovery and the strength of the property market. A softer landing than hoped for the labour market in November and December could mean this bullish streak still has a long way to run,” Pendleton said.
We are already seeing a huge shift in rental demand across the country as a result of people unable to buy property or keep their mortgage and consequently choosing to rent. There has been a significant supply-demand mismatch which has pushed rents up in many areas, like Bristol with 4.6% growth and Northern Powerhouse giant, Leeds with a 3.5% annual rise in rents in the year to June.
As we have learnt in London, residents are no longer afraid to live in the less expensive outer areas. With that in mind, if you are an investor who owns property on the outskirts of a big city—such asBootle or Flintshire—you are in a very strong position!
