Alpa Bhakta, CEO of Butterfield Mortgages Limited, part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited, examines what the future may hold for the market.
No sector is immune from the impact of Covid-19, or the coronavirus.
For the property market, lockdown measures have posed logistical challenges for those seeking to begin or complete an existing transaction.
These measures also come at a time when investors were once again rallying to bricks and mortar as a result of the so-called “Boris bounce”.
The election of Conservative majority government in December 2019 symbolised the beginning of a new era in UK politics. Investors were optimistic that this election victory would break the political deadlock surrounding Brexit and provide greater certainty for the future.
The financial reaction to Boris Johnson’s victory was almost immediate. Knight Frank recorded more transactions in prime central London (PCL) property in the two weeks following the election than it had witnessed since December 2016.
As a result, it anticipated a significant rise in transaction activity over the course of 2020.
Covid-19 has now brought many of these early projections into question. Yes, property market activity is slowing down as a result of the pandemic, but there is nothing to suggest that demand has disappeared.
Much like the surge in activity that was witnessed following Boris Johnson’s victory at the 2019 general election, buyers of real estate are likely to act on their intentions once certainty returns to the market.
When it comes to PCL in particular, there is one factor that could increase demand for prime real estate in the capital once the pandemic is effectively contained.
NOW READ: Female home buyers paying £4,624 more than men
Changes to Stamp Duty Land Tax
In the 2020 Spring Budget, Chancellor Rishi Sunak announced a series of reforms to help provide financial relief to businesses as a result of Covid-19.
As a result, many of the anticipated reforms concerning real estate were put on hold. One announcement that did make the Chancellor’s speech was the implementation of a Stamp Duty Land Tax (SDLT) surcharge of 2% for overseas buyers, 1% lower than the 3% originally touted.
Despite not being as high as originally proposed, the chancellor plans to generate £105 million in extra tax revenue through this reform.
This will have a significant impact on the PCL property market – over half (55%) of transactions in this market in the second half of 2019 were made by international buyers. This means we could see a surge in activity from international investors following the pandemic and before April 2021.
Long-term house price growth
For a holistic look at how the above will factor into wider market movements, it’s useful to understand the insights that can be gained from global real estate provider Savills. Having reviewed their five-year projections, they remain confident that average UK property prices will increase 15% by 2024.
The global real estate service provider does not predict any particularly long-term effects of Covid-19 as the disconnect between supply and demand of UK housing has not been fixed. Meaning, during this period of sector inaction demand is being pent up, and the number of sellers eager to place their house on the market when conditions improve only increases.
Of course, at this moment, it is difficult to make any bold predictions about the future. The situation regarding COVID-19 is constantly changing and there is still no indication of when current lockdown measures will be lifted.
While it is too early to make any accurate predictions, it looks as though activity in the PCL property market is slowing down, rather than declining.
For the latest headlines from the City of London and beyond, follow City Matters on Twitter, Instagram and LinkedIn.
