The residential property market as a whole, and especially in the East Midlands, has been remarkably resilient in 2020.
We started the year expecting a 4% rise in prices (see our annual predictions in January), many others were a lot more bearish than us. For example, Savills predicted a 7.5% fall in prices. I am glad to report that it seems we will be correct, OK we did not predict covid and its impact but we judged sentiment. Nationwide reported house price growth in the first 8 months of the year of 3.2%. Savills have subsequently, in September, revised their -7.5% prediction to +4%; the same as us!
Many commentators, not us, expected doom and gloom with covid and the property market to be hit hard. Instead it has been firm, and for choice prices have ticked up across our region. Why? Behavioural change; more people have had more time at home, encouraging trading up, reassessing life/work balance and planning change. Furthermore, interest rates have dropped even further, base rate is now at 0.1% and furthermore we expect to stay at sub 0.5% for the next 5 years as the economy recovers. This is exceptionally cheap money and mortgage rates are likely to be sub 2.5% for the next 5 years.
There has also been further support by the Government reducing the stamp duty for properties sub £500,000 which has had a positive effect. The effect is positive not just for end users but also with people looking to invest or move property into a company structure for potential tax efficiencies as this could now be more financially viable due to a lowered Stamp Duty cost – which the chancellor is intending on running until the end of March 2021.
The economic backdrop is not great but we have faith in the chancellor and in the British economy and in our resilience to get on with the job. It will take a long time to get back to a more normal economic environment, so in the meantime one needs focus on fundamentals and real assets, like property.
So what for the future? We are positive. Money is cheap. East Midlands prices are not high. Brexit will not adversely hit our market, London is far more exposed. Generally, residential investment property is still an attractive asset class, and with nil returns on bonds, cash and decreasing dividends, we think residential property is a solid investment over the next 5 years (again, please see our annual predictions we did in January).
What might outperform? Good quality family housing, those with decent sized gardens, a more rural area with good quality of life. Prime properties also as wealthy buyers seek a larger home or a rural holiday home.
What are the risks? Massive unemployment, banks restricting mortgage lending, a worse than anticipated economic contraction. However, given the risks we think residential property is a sound investment.
Over the longer term, in the new norm, we expect house prices to keep moving up. Not irrationally, not aggressively but steady house price appreciation leading to capital appreciation. Combine this with a rental yield of 4-7% and the merits of residential property as an investment can be seen.
SO we hope a ray of positivity, and the East Midlands are forecast by us, and by Savills to outperform many other parts of the UK over the next 5 years. Indeed the region is forecast to be one of the top 3 regions.
Please do call us to discuss your requirements, investment opportunities and investment strategies.