At this moment in time it is difficult to see light at the end of the total as the coronavirus continues to impact all areas of private and business life. Interest rates have been slashed to 0.1% as the Bank of England and the UK government look to shore up the economy. The property market has been temporarily frozen and there are serious concerns about how property prices will react when the lockdown comes to an end. So, while it may be difficult, it is sensible to take a long-term view and detach yourself from the short term challenges.
Despite the fact that the UK has left the European Union and is currently in a transitional period, the idea that immigration will “fall off a cliff” is well short of the mark. European Union citizens will still be able to move to the UK via the traditional immigration system. There will continue to be huge movement amongst Commonwealth countries and from other countries that have previously used the traditional immigration system. When we also take into account natural population growth in the UK it seems inevitable that there will be further pressure and further demand for housing.
We only need to look back to the December 2019 election to see the promises of huge new build investment from both the Conservative and the Labour Party. It is inevitable that government plans to increase newbuild numbers will be delayed somewhat in light of the lockdown and social distancing, which will place yet more pressure on current housing stock. We already know that the number of newbuilds has for many years been well behind the curve with regards to population growth and demand.
House price growth
At this moment in time it is impossible to say with any certainty how UK house prices will respond in the short to medium term. Will they be buoyed by near 0% interest rates or will an increase in unemployment and repossessions numbers hold back growth? There are hopes for a “U” shaped economic/property market rebound but will this materialise?
A recent report by estate agency Knight Frank suggests that London property prices will fall by 3% in 2020 before rebounding by 6% in 2021. However, many people are drawn to the headlines of a 38% fall in transaction numbers when this has no real correlation with house prices. Indeed, if potential sellers were to withdraw their homes from the market then this could introduce greater competition per property available. So, when looking at the headline figures it is essential to focus on forecasts for house price growth.
The UK’s worldwide ambitions
The UK is often underrated when it comes to economic power and worldwide influence. However, a quick look at the World Health Organisation (WHO) funding for 2018 will give an idea of the UK’s influence. The US contributed a total of $400 million in 2018, next was Bill Gates and his charitable trust at more than $200 million then we have the UK just behind Bill Gates in third place at $200+ million. So, yes, the UK does have challenges with regards to Brexit, and the coronavirus has and will continue to cause problems in the short term. However, property investors looking longer term may well experience some significant gains.
There are numerous reasons why the UK property market still looks attractive longer term and why many investors have been refinancing assets to increase liquidity. Whether or not we see a “U” shaped recovery remains to be seen but there is still strong underlying demand for UK property. As ever, timing will be the key with many investors waiting for the expected initial markdown in property prices. If this happens it could prompt a huge wave of new investment……