The UK residential price growth is forecast to increase by 5 per cent by the end of 2021, whilst growth in London is predicted to exceed this, to the tune of 6 per cent, according to latest market predictions.
A recent report by Knight Frank anticipates that short term pressures on the UK housing market, necessitated by the UK government’s response to the Covid-19 pandemic, will rebound sharply in line with a positive outlook for the UK economy in 2021.
“Our view is that mainstream UK house prices will fall by 3% in 2020 with prices in prime central London remaining unchanged following a 25% fall in some markets since 2014. Our expectation is that prices will recover sharply in 2021 – and have pencilled in 8% growth for prime central London prices for next year,” Knight Frank said in its report.
These predictions incorporate several assumptions, which will affect these outcomes, however. Firstly, that current restrictions are set to continue into May, and slowly pull back into June. The absence of social distancing restrictions earlier than this would be a boon to businesses and drive faster economic growth apace. Second, there will be increased recognition of the need to balance public health and economic objectives. Recent developments in Spain and Denmark suggest such behavioural changes across Europe have already begun to take place.
One key driver of this growth will be the financial sector. Ongoing, record level, fiscal and monetary stimulus alongside a rapidly evolving competitive landscape is likely to propel momentum in the medium term which saw Bank of England approvals data for house purchases in February, before the onset of the crisis, reach the highest level since 2014. There is an unprecedented level of product innovation currently, as lenders attempt to capture market share - particularly many private banks - given the unwavering fiduciary motivations for lending whilst managing risk. This appetite, for yield, is unlikely to diminish despite the time it takes to adapt to new market conditions.
Technological progress underpinning the rise of open-banking, data and analytics is enabling these institutions to more easily mortgage credit risk and hence finance a greater range of buyers. Moreover, these enhanced modelling capabilities continue to enable new entrants to support buyers as they re-enter the housing market. Given this outlook and increased access, the premise of such an expansion is particularly well supported.
The outlook we set out below confirms a sharp fall in activity. Looking beyond the short-term, however, and we predict an equally sharp uptick in the housing market into 2021, mirroring the outlook for the economy, says Knight Frank