It goes without saying that the UK housing market has been significantly disrupted by Brexit and more recently the coronavirus pandemic. However, as 2021 draws to a close and with potential concerns over the new COVID-19 variant, how will the London housing market perform as we move into the new year?
Nature of demand:
The lockdowns endured over the last eighteen months or so have driven buyers to look out of the city to more rural locations where they can benefit from more indoor and outdoor space to facilitate working from home. Whilst this ‘race for space’ was profound during the peak of the pandemic, it seems that this mindset has endured despite the fact that restrictions have been lifted. As people have gradually started to return to the office, the appeal of living in the city is seemingly making a comeback, however people continue to seek out spacious homes. Buyers are showing a particular interest in flats with a preference for two-bed flats or flat shares in order to ensure they still have sufficient space. Similarly, interest in the Prime Central London market has risen over the summer which has seen supply levels unable to keep up with demand. Buyers are being drawn towards these higher-end properties due to the greater amount of space that these properties benefit from.
Whilst the profile of buyers has been more heavily weighted towards domestic buyers, the easing of COVID-19 travel restrictions has led to the return of foreign buyers which is driving this demand in the prime market. However, this also runs true for the rental market, with overseas investors keen to tap into the London market and extend their buy-to-let portfolios given the heightened demand for rental properties.
It has to be noted that whilst there is this demand for flats, many people who currently live in high rise apartment blocks which have certain types of cladding are finding themselves unable to sell their homes. This is because mortgage lenders are refusing to lend on the property without an EWS1 form being issued to indicate that the building is compliant with the fire safety regulations. If you would like to read more about EWS1 forms in detail, please follow this link. (Link to EWS1 blog for further information on this topic?).
Despite the end of the stamp duty holiday in September, demand has remained strong which in turn has seen prices continue to rise. However, according to data published by the ONS, the growth in house prices in London fell below other UK regions, coming in at 2.2.% compared to the national average of 8%. With families placing greater emphasis on space than location, house prices in some of the capital’s suburbs have experienced significant growth. For example, based on research carried out by Rightmove, the borough of Merton has seen the greatest rise in asking prices in London, with an increase of 8.8%. The number of properties bought in 2020/2021 using the Help to Buy scheme reached its highest annual record, with nearly three quarters of these purchases of homes in the outer London boroughs.
The demand for rental properties in London is considerable, with the most recent RICS Residential Market Survey recording a record-breaking quarterly level of demand in the London rental market. As such, supply levels are struggling to keep up with this level of demand which is putting upward pressure on rental prices. This is particularly due to the return of international students and their desire to live in the capital. Research carried out by Benham and Reeves outlined that rental prices in London have increased by 9.4% from 2020 and 5.7% since 2019. However, it has to be noted that compared to other regions in the UK, the rental growth experienced in London has been the lowest.
With the new COVID-19 variant sweeping into society, there is concern regarding how this may affect the housing market, with early indications indicating it could dampen the market in London. Whilst it is too early to tell, it has been suggested that the new Omicron variant could limit price growth seen over the past few months as people may be more hesitant to put their homes up for sale as they wait to see how severe the variant proves to be. However, experts have predicted that the market will pick up in the new year and return to more normal levels of activity following the disruption seen over the past eighteen months or so. According to Savills, it is forecast that in 2022, house prices in London will grow by 2% which falls below the rest of the UK which comes in between 3% and 4.5%.