Faced with severe economic downturns in 2020 (estimated at minus 3.5 percent) and still in the midst of exceptional uncertainty, the global economy is projected to grow 5.5 percent in 2021 and 4.2 percent in 2022.
Vaccines have given a fillip of 0.3 percentage point relative to the previous forecast, reflecting increased economic confidence. The strength of the recovery is projected to vary significantly across countries, depending on access to medical interventions, the effectiveness of policy support, exposure to cross-country viral spreading and the state of individual economies on entering the crisis e.g. low-income developing economies, entered the crisis with high debt that is set to rise further during the pandemic.
Property markets have surprised, particularly in the UK..
There was uncertainty with the housing market during the twelve week National Lockdown from 23rd March 2020. Initially it went into hibernation – as buyers, sellers, renters and landlords were told to delay home moves if possible, not to initiate new viewings and follow through pipeline transactions virtually.
It is estimated there were 450,000 buyers and renters with plans on hold, of which 373,000 were property sales with a total value of £82bn (Zoopla estimates). Sales were running at a 10th of the normal level for the time of year, similar to usual sales volumes of a December.
By the 2nd Lockdown on 5th November the housing market remained open for Estate Agents, removal firms and conveyancers abiding by Covid-safety measures in England, but with greater levels of restrictions in Wales, Scotland and Northern Ireland.
At the same time the Pandemic caused transaction delays in England, prolonging Contract Exchange times from 96 to 124 days, a 29 per cent increase (Movewise).
This was followed by a mini housing boom, as a result of pent-up demand and the Chancellor’s stamp duty holiday. The extent to which government Bounce Back Loans (BBLs) were used for deposits on properties is unclear, but anecdotally it was happening and may have contributed in some way.
All of this combined to push prices up and create a property frenzy in some areas towards the end of 2020.
Fears are that the end of the stamp duty holiday, at the end of March 2021, will cause a sharp drop in transaction levels, which can typically lead to price falls. Already house price growth in the year to the end of January 2021 was 5.4 per cent, down from 6.0 per cent in December (Halifax) and new instructions to sell have decreased noticeably.
We are also now entering the 4th and final year of ‘Section 24’ changes to the way landlords calculate their buy-to-let mortgage interest tax relief, which will be fully implemented and reported in 2020/21 Tax Year in Tax Returns filed by January 2022. This tax-relief withdrawal had already had a dampening effect on the property investment market but will be fully felt in this final year.
Whilst London has been harder hit than most of the rest of England, with a number of homeowners and renters migrating outwards, it may not continue a downward trajectory.
Kearney’s 2020 Global Cities Report ranks London as the No. 2 City, after New York, but London tops the rankings when it comes to the outlook based on long-term investments in governance and economics.
Whilst the rankings have been produced without fully taking into account the effects of the pandemic and prior to seeing any visible signs of the Brexit fallout, it provides a reference point. It also means London starts out in a really strong position, particularly rated for the cultural experience offered, the strength of Medical Universities, global service firms, its news agencies and the overall international travel experience.
Conclusion: property market uplift?
Whilst vaccines may have given a 0.3% upward fillip to world economies, how much might vaccines boost the housing market or otherwise?
It is difficult to strip out the myriad of interwoven drivers of house prices in the UK property market. Drivers such as: rising unemployment, – deteriorating after government support to industry is withdrawn, affordability levels, liquidity of the housing market as less stock comes to market post SDLT holiday is scheduled to end. These all hint at prices lowering. There are also more unknowns, such as the level and shape of the tax burden to be announced in the Chancellor’s March budget.
Yet house building rates still fall short of government targets, exacerbated by Covid, thus constricting supply of newer stock on the market.
The vaccine programmes boost morale and confidence, which can only help the country and economy get back on its feet – and this will have a positive knock-on effect on the housing market.
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Tags: Covid-19, economy, housing, Property tax, SDLT