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London Property Market Forecast – What does 2020 Have in Store?

Posted by Ugo Arinzeh on 3rd January 2020
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Happy New Year everyone! Now that we are in 2020 and we have the general election behind us what does the London property market have in store for 2020? Well, make sure to check out this video because we’re going to be covering it all!

 

Since I’ve helped countless numbers of families buy and sell property in London it puts me in a really unique position to understand them and what their concerns are, and I know how important it is to have the best information to make a decision. That’s what this article is about – sharing with you the latest on the London property market, so if you are thinking about buying or selling this year, you’re well-informed.

 

As a quick recap, ever since the London property market peaked in 2014, it’s definitely been on a steady decline with property prices going down as well as transactions. According to the Land Registry, price growth has actually been negative for over the last 20 months and transaction volume has definitely been flat to declining since it peaked in 2014. Property prices have been on the decline on average of 20% and in some areas actually more. When you factor in the declining pound it means that a property you bought in 2014 that cost you £1.5 million would only cost you £775,000 today which is a decline of over 48%.

 

So what has impacted this decline in property prices? Well, there have been three key factors – the first was major stamp duty changes in December 2014, making it much more expensive to purchase property especially at the highest end; then there was an additional stamp duty of 3% that took effect in April 2016, which added 3% stamp duty for buy-to-let properties and second homes; and the third major factor was of course the Brexit election of June 2016 where the UK decided to exit the EU. That election really sent markets down, and ever since then there’s definitely been a black cloud over the London property market that really hasn’t shifted.

This chart actually shows the value of the British pound over the last five years and you can see the major drop in value that happened after the Brexit vote in 2016, since then the pound has actually failed to recover its pre Brexit value relative to the US dollar.

In this one month graph we have a rebound of the pound after the most recent UK general election on December 12th. This next chart shows the sales volume and housing price index from 2006 to January 2018, what stands out here is the steady decline of sales volume during the financial crisis that started impacting the market in 2006 to 2009 the market then starts rebounding, and then you can see the spike in transaction volume in March of 2016 just before that additional 3% stamp duty surcharge kicked into effect in April 2016, since then transaction volume has been well below the period of 2006 to 2014.

Has Brexit impacted your decision to buy or sell property in London? Make sure to leave me a comment and give me your thoughts.

 

So now that we’ve given a historical context and with the recent general election in December 2019 where the Conservatives won a majority in government, it definitely seems that Brexit is sure to happen on the 31st of January 2020, but what does that actually mean for the London property market?

 

In my opinion, even with Brexit, things remain incredibly unclear because we don’t know what the UK is going to look like relative to its European neighbors and the rest of the world whether it comes to trading or impacting a movement of people and goods, therefore I think we’re going to have a prolonged period of uncertainty until those types of things are really clear, and resolved. As I dealt with a lot of buyers last year they actually were quite concerned about the potential for further major price declines, and on the other side of the coin, some of them were wishing that the property market would crash and they could take advantage of further price declines – that actually still could happen because if an agreement isn’t reached or passed through Parliament, the default right now is that the UK government could crash out of the European Union on 31st of January. Let’s hope that doesn’t happen because forecasts are property prices to decline anywhere from 6% to 20% in that case, the scenario if an agreement is reached and there is a smoother exit out of the European Union.

 

I think property prices will continue to be flat to declining over the next several years again as there will remain uncertainty on how the UK government functions. Last year we actually saw quite a few foreign buyers taking advantage of the continued declining pound and property prices and scooping up properties in London. Generally speaking, foreign buyers were actually very happy with the results of the general election as there was a deep fear in Jeremy Corbyn-led Labour Party and its proposals to punitively tax the wealthy. Many foreign buyers actually might look to take advantage of the current situation as the pound now might start to increase, making it that much more expensive for them to buy as well as the fact that the Conservative government has already put forth a proposal for an additional 3% stamp duty on foreign buyers, so you might see a surge over the next several months because if that takes effect, and I think it’s going to be coming out in the New Year budget, you definitely will see smart foreign investors taking advantage of the window that’s currently in place.

 

Overall, the general consensus for 2020 by most experts is that transaction volume would continue to remain flat to possibly declining and property prices might inch up slightly over the next 12 months, that’s because buyers will continue to be wary to see what happens with the economy overall and many sellers who have the option to hold off will continue to do so if they feel like they’re not able to get top dollar, therefore we’re just not going to see the same level of transactions that we saw prior to and during the peak around 2014.

 

When it comes to London in particular, which has a chronic housing shortage, I really believe the government needs to invoke a comprehensive housing program that involves really putting out much more supply as well as making property prices more affordable for London residents – that might mean being much more innovative and partnering with developers to create housing that people can afford as well as tax incentives that really help people afford properties, not just in terms of the deposit they’ll need, but the affordability of those mortgages over the long term.

 

Given the lack of supply in the rental market rental rates are actually projected to increase about 3% in London, making it that much more unaffordable for people and residents who are already stretched to pay their rent. I actually think that this is one of the key results of government policies that actually made it much more punitive for private landlords to own property and get a decent return on it, they’ve been hit with various tax changes that have made it much more challenging to earn a great return. If you want to hear more about that check out one of my latest videos on tax changes that have impacted landlords to get a clearer sense of what’s going on.

 

In that context, as a London-based property agent, I’m still overall fairly optimistic about 2020. Why? Because there are still fundamentals that people should consider when they’re looking to buy – interest rates are still historically low and could still creep up over time making it that much more unaffordable to purchase the property, and I still think the fundamentals of what makes London so appealing, especially relative to other countries, is still in effect. There’s great rule of law access in trust and title and transfer and you’ve got all the amazing financial institutions, educational facilities, arts and culture that makes London an appealing place to live and invest.

 

Regardless of the headlines, as I talk to my buyers and sellers in 2020, one of the key questions I will ask is “why do you actually want to buy this property?” often it’s driven by personal reasons, whether that’s downsizing, more space for a growing family, or needing to relocate for work and other issues, those things are very real and what I advise people is instead of trying to time the market and get this perfectly priced property that’s hit rock bottom which we can never time, it’s much more important to be looking in the market that we’re in right now and making sure that a property you acquire is actually great value for your needs.

 

Over the last quarter in 2019 I transacted several sales, and it was because of people who really had a genuine need to buy and sell during that period and will be much happier that they’ve been able to move on with their lives because of getting rid of the property or buying into the new home that they’ve always wanted.

 

I hope this article has been helpful for you and given you a bit of a sense as to what 2020 might have in store. If you’re thinking about buying or selling and have any questions I definitely would love to hear from you please make sure you leave me a comment below or reach out and I’m always happy to have a consultation, which is a free discussion to talk to you about your London property needs.

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