RESIDENTIAL MARKET COMMENTARY
The optimism of late summer, as Coronavirus infection rates fell, has been replaced by increasing apprehension as infection and tragically mortality rates have surged to their highest levels since the Pandemic began.
Redundancies reached a record high of 370,000 in the three months to October 2020, increasing the unemployment rate to 4.9% being 1.2% higher than October 2019. Some of this will, hopefully, be temporary as the hospitality sectors will at some stage return to their previous levels of activity. Economic damage can take a long time to repair and although the worst possible outcome of the United Kingdom’s exit from the European Union has fortunately been averted at the eleventh hour, there is a considerable amount of adjustment required and there will almost certainly be some further upheaval before the economy settles.
However, the unprecedented strength of the residential property markets recovery from lockdown was one of the few welcome surprises during 2020. Considering the United Kingdom as a whole, annual house price growth rose to a six-year high at the end of 2020 and October mortgage approvals were at their highest level for a decade. The Government’s confirmation that the Stamp Duty holiday will not be extended has sounded a note of caution as (reminiscent of the abolition of Dual Tax Relief on mortgage interest in 1988) many purchasers have brought forward their plans to move home and the market will probably quieten at the end of March.
However, the number of people with the income and confidence to move home during this difficult time must be regarded as an indication of the underlying strength of the UK economy. We may also be proud of our scientific industry which has been at the forefront of vaccine development, allowing us some cautious optimism that we may well be approaching the decline and end of the Pandemic during the course of 2021.
We believe that the Government’s decision to allow the property market specifically and business in general to continue may well have averted a potential economic crisis provided that the business community reciprocates by reducing interactions that could spread the virus.
We agree with the prevailing view that a reduction in values from the present all-time high may be seen with the end of the Stamp Duty holiday and the likely tax increases to pay for the measures that the government has put in place to mitigate the effects of the Pandemic.
We have identified a reduction in demand within both the sale and rental markets in locations whose market appeal was based on ease of commuting to the Central London area. The rise of home working may well become a permanent feature of business life with attendance at the office designed around networking rather than access to data and equipment.
It is likely that there will be a market correction and not a meltdown as the residential sector stabilises. However, we will be looking carefully at the implication of agreed transactions and considering the extent to which established patterns of value are relevant.
There is a contrast between extreme positive and negative factors and Londons Chartered Surveyors and Valuers consider that the principal challenge for valuing in 2021 will be to make a balanced judgement between them.