After such a challenging 2020 the housing market has remained remarkably resilient. Steps to keep the market open included desktop valuations, virtual viewings, and of course the Stamp Duty holiday introduced by the Government. Lenders, however, withdrew most mortgage products of 90% loan to value or higher and tightened lending criteria.
In our Property Outlook for 2021, we look at the market, trends, and opportunities for the year ahead
The “escape from the city” movement that we have seen during 2020, caused in part by businesses closing offices and moving employees to a work-from-home basis is set to continue, with many businesses indicating that they will remain in the long term.
Early in 2020, the tax regime changed. This opened up opportunities for professionals to pick up below market value properties from hobby landlords who sold up rather than putting tax-efficient measures in place. There is likely to be further change in taxation with Capital Gains Tax on the agenda for reform by the Chancellor.
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- Trends in the rental market are expected to mirror the changing requirements of house buyers.
- Previously tenants would have settled on less space in exchange for a central location, but inquiries have shifted toward the need for space.
- So the change in the economy caused by Covid and working from home requirements has driven change that is likely to continue.
Savills and numerous economists anticipate that Covid will have a “v-shaped” effect on the economy. After a sharp fall into recession, strong growth later in 2021 is expected.
While the housing market has weathered the Covid storm well, as the economy stabilises so will rental demand increase in those areas where growth is likely to be most pronounced.
Growth areas have been the North East, North West, and Midlands, thanks in part to the investment in the Northern Powerhouse and Midlands Engine. Rental yields in cities like Liverpool and Manchester are among the highest in the country, while the South and London lag behind.
In the case of the North and Midlands, even though growth is higher than elsewhere, prices remain lower than the South East, London, and the East. In terms of investment risk, that puts investment in these regions within reach of most property investors.
And with continued investment through the Northern Powerhouse and Midlands Engine, rental demand remains high, even during the Coronavirus pandemic. As the economy returns to growth it is likely that this demand will accelerate as new employment opportunities are created.
There is a risk of higher taxation through changes to the Capital Gains Tax regime. But with every risk comes an opportunity. In this case, the motivation to reduce potential exposure to capital gains tax could motivate property investors to streamline their business structure and look at how it runs, how tax-efficient it is across the board, and where the opportunities for raising capital for additional investments lie.
Responding to market conditions and the changing requirements of tenants will be key to growing property investment businesses in 2021.
Where to Invest
Getting the right property is important, but where it is plays just as important a part. Finding the right balance between price, yield, and demand should govern where the investment is made.
- Northern Cities
- The North East and North West
- The Midlands
Outlook for 2021
2020 has been a challenging year without a doubt.
- Rent arrears have increased.
- Primary legislation to protect tenants from eviction
- The housing market and rental market have held up remarkably well
House prices have been estimated by economists at between 0% and 8%, so
- The outlook for the market is positive.
- A dip at the end of the Stamp Duty holiday is expected, but only for the short term.
- In terms of the rental market, the outlook is also positive