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UK Property Mid-2021 Outlook: Brexit, The Coronavirus & Beyond

Much has happened in the past year— from the long road to Brexit, then Covid-19 and its excruciating impact. Will the UK remain a top investment destination? Does a compelling reason to invest in UK property still exist? 

 

At 23:00 GMT on 31 Dec 2020, the UK officially left the EU after finally agreeing to a deal. 

The three and a half years leading to Britain’s exit from the 27-member bloc has been tumultuous, to say the least. The announcement of the EU Referendum in 2016 had led to political and economic tremors, with Britain enduring 2 General Elections and 3 Prime Ministers. 

Productivity took a hit as a result of trade and other policy uncertainties, and the value of the sterling plunged to its lowest rates in years; yet growth stayed positive, albeit at a slower rate. 

Then came Covid-19. The UK—along with the world’s top developed economies like the US, Canada and Germany—entered a recession for the first time in 11 years.

 

Economic Performance: Recovery Continues

In spite of Brexit, the UK ranked #2 for overall foreign direct investment (FDI) in Europe, demonstrating its resilience. It maintained its position as the #1 destination for financial services (FDI) in Europe, attracting more investment than France and Germany combined.

The Covid-19 pandemic notwithstanding, financial services (led by London) is expected to continue adapting and the UK will remain a leading destination for overseas investment. Surveyed during lockdown, 31% of global investors suggested they were planning to invest in the UK in the coming 12 months, the UK’s highest rating for a decade. 

The GDP, which plunged 20% at the height of the pandemic in April 2020, bounced back 22.9% higher in September. The UK economy proved its resilience again when it avoided a double dip recession following the second lockdown and recorded a 1% growth in Q4 2020. 

Although the job market was fragile due to the pandemic, the job market showed signs of recovery in Q1 2021 as restrictions eased and businesses took on more staff. 

Cumulative GDP Growth Forecast 2021-2023
The UK’s economy is expected to grow 13.4% from 2021 – 2023. *The fiscal year for India is April of the reference year to March the following year. ¶This is calculated with purchasing power parity exchange rates. Sources: S&P Global Economics and Oxford Economics & S&P Global Ratings

While gradual and continued economic recovery hinges on a viable resolution to Covid-19 and the continued need for government intervention, its recovery has thus far been encouraging, with growth advancing for the 5th consecutive month in June 2021 in spite of several lockdown measures. 

The GDP is expected to start improving from 2021 with full recovery to pre-Covid levels forecasted from 2023 onwards—similar to the OECD’s prediction for global output. Latest figures point to a total growth forecast of 13.4% from 2021 – 2023.

 

House Price Growth: Fastest Rate in 17 Years

House prices have grown steadily in the UK despite the deepest of recessions, driven by critical undersupply and a continually growing population.

Research shows that the country faces a housing backlog of 4 million, and needs approximately 300,000 houses built per year to make up for the shortfall by 2031. The UK has been unable to meet the yearly requirement (following the EU Referendum, construction activity declined between 2016 and early 2020) hence, the shortage will continue to snowball for each year that the required number of houses is not fulfilled, on the back of a growing population. This undersupply will continue to fuel house price appreciation. 

The UK has one of the fastest growths in property price among countries in the developed world. Source: Data.gov.sg, URA, data.gov.hk, Economic Research Division Federal Bank of St Louis, HM Land Registry, RBNZ, Abelson & Chung, ABS, MHPI, macrotrends.net, FTSE, KLCI, STI, S&P 500, CSIPROPResearch
The UK has one of the fastest growths in property price among countries in the developed world. Source: Data.gov.sg, URA, data.gov.hk, Economic Research Division Federal Bank of St Louis, HM Land Registry, RBNZ, Abelson & Chung, ABS, MHPI, macrotrends.net, FTSE, KLCI, STI, S&P 500, CSIPROPResearch

The rate of house overcrowding in the UK is at 5.9%, supporting the argument that too few homes have been built at a time when the population is expanding, with what’s been built being too small.

Because of the housing undersupply, the UK’s vacancy rate currently stands at a tight 2.7%, offering landlords a good chance of securing tenants, particularly as more people in the UK are opting to rent than buy.

Overall, house prices defied Covid-19 in 2020. Whilst there were no drastic price plunges similar to the stock market resulting from the national lockdown in March, the market went into a state of suspended animation. There was a significant decline in housing activity as viewings paused, uncertainty affected household decisions, and the number of sales coming into the market saw a reduction due to physical restrictions.  

Yet, it was also in 2020 that mortgage applications hit a 12-year high. Average UK rents also increased 1.4% over the year to November 2020, according to the ONS.

In Feb 2021, house prices jumped by 8.6% from Feb 2020, the fastest annual increase in 6 years spurred by the release of pent-up demand after the lockdown, a cut to property sales taxes and a shift in preferences as a result of life in lockdown. 

Property prices are projected to grow more than 20% over a 5-year period. Source: JLL & Oxford Economics
Property prices are projected to grow more than 20% over a 5-year period. Source: JLL & Oxford Economics

Latest statistics from the ONS show that house prices have risen at 13.2%, the fastest rate since 2004, as many dash to beat the stamp duty deadline. England’s hottest region in the past year has been the Northwest, where prices were up by 18.6%. House prices are projected to grow over 20% from 2020 – 2025 as the economy improves and low interest rates support affordability.

However, growth in 2021 is expected to stagnate due to the end of the stamp duty holiday and a projected rise in unemployment as a result of Covid-19. This is not unusual—a poll conducted by Reuters in Oct 2020 revealed that 2021 will be a tough year for housing markets globally.

 

Population Continues to Grow

Despite tightened immigration rules, the population of the UK has continued to expand. Over the past 2 decades, net migration overtook natural change as the major component of population growth, making up 56% of population growth from 1991 to 2018.

Net international migration is a major driver of population growth in the UK. Source: ONS
Net international migration is a major driver of population growth in the UK. Source: ONS

ONS projects that the population will increase by 3 million (4.5%) between mid-2018 to mid-2028, with England’s population to grow more quickly than other parts of the UK: 5.0% between mid 2018 and mid 2028, compared with 3.7% for Northern Ireland, 2.7% for Wales and 1.8% for Scotland. More than 70% of this population growth will be from net international migration. The UK population is projected to pass the 70 million mark by mid-2031. The increase in population numbers will increase demand and put pressure on housing supply.

 

End Word

The UK economy continues to recover as restrictions lift, whilst super low interest rates and the stamp duty holiday and pent-up demand drive capital growth. One of the hottest regions for house price growth remains the Northwest, but other cities like Birmingham are projecting strong growth, too. Over the next few weeks, we will share the mid-2021 outlook on specific cities in the UK. Be sure to stay tuned.

Wherever in the world that you choose to invest in, find out how your desired investment property stacks up by using our G.O.L.D.M.I.N.E. Strategy © and S.A.F.E.T.Y. 1st © Criteria to ensure you have considered everything necessary for exponential growth. No idea what that is? Attend our free webinar to learn more. Register here: https://webinar.csiprop.com/

Read our Mid-2021 Outlook on the Australian Property Market here


By Vivienne Pal

All data is accurate and up to date at time of writing. © 2021 

 

SOURCES:

https://edition.cnn.com/2020/08/28/economy/global-recession-g7-countries/index.html

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