The UK Property Market: What are Investors Doing?James Trafford
As we phase out of lockdown, it is important that we take a moment to reflect on how the first half of the year has shaped confidence in the UK property market.
As we entered 2020, we saw levels of activity in the housing market at their highest levels in years. Referred to as the ‘Boris bounce’, the clarity over where the UK stood in relation to the European Union tied with Boris’ unanimous election boosted confidence in the market, investors went on to make deals at a rate we have not seen in years.
However, COVID-19 and the subsequent lockdown brought the market to a standstill. The Government put a freeze on the market, with the advice to ‘stay put’ and delay any completions until lockdown measures were lifted.
Whilst we are seeing something of a return to normality, the market has suffered as a result of the lockdown. Sellers are having to drop prices by as much as 10 percent, with experts predicting anywhere between a 3 to 13 percent fall in house prices over the coming year.
A case for optimism
However, it may not all be doom and gloom, particularly for the property market. Here are FJP investment, we recently commissioned a survey asking 850 certified investors a series of questions to gauge the level of confidence in the market.
The surprise was the popularity of bricks and mortar. In fact, almost half (48%) have said that property remains a popular, safe and secure asset irrespective of the recent crisis. Only 12% disagreed that property was a secure investment asset.
Yet, despite the positivity from investors, there does seem to be unrest in the market. The ability for investors to follow through and make transactions is an entirely different scenario. Are investors willing to make these purchases, or will they wait until the dust has settled?
Apprehension in the market
Perhaps no surprise, one in five (20%) investors surveyed said they had cancelled their plans to purchase property in 2020. This figure is high, but what is particularly alarming is that between the ages of 18-34 years old, 39 percent cancelled their planned purchase.
This hesitation is evident in Nationwide’s recent house price index with a drop of 1.7 percent month on month in house prices. There is a case to be made that this fall could equally be a result of transactions simply not being able to go ahead during this period, however.
Investors are hesitant about what the future will bring. 43 percent said that they are not planning to make investments until the pandemic has appeared to have passed, or a new normal has been officially established. Whilst many believed investors would take advantage of the fall in house prices, the survey shows that investors are taking a risk adverse approach to the situation.
Recovery is on the horizon
What the findings suggest is that, once we have established a new normal and the state of alarm has subsided, property should be an asset class that has a strong recovery. Demand has not disappeared; it appears to still be paused.
Most experts predict a rise in property prices in 2021. The rate of negative house price growth is already slowing, suggesting we are through the worst of the damage to the housing market – something many feared would endure far longer.
When investors establish confidence once again, activity in the market and a subsequent rise in house prices should occur. Much like we have seen in the past, property is a resilient asset class which weathers most economic downturns. The effects of the current crisis are unlike what we had seen with the 2008 financial crisis, there is a lot of optimism still in the market.
It is important that we keep our feet grounded, however. A second spike would have an equally, if not more damaging impact on the market that has already taken a hit. Aside from this, there is certainly a case for optimism over the future health of the housing market.