Property Predictions for 2020
Updated: Jan 30, 2020
By Stephen Johnson
The end of 2019 saw the theme of the year – one of general inactivity as sellers and buyers sat on the side-lines – amplified by the General Election. The chance of a radical socialist government, with its associated economic plans, has now been removed from the picture however and the big question is what will 2020 hold for property?
Here I make some predictions for the year ahead.
A modest improvement in confidence and sentiment emerges as a government with a strong majority provides some stability. This will release some pent-up activity on both the supply of new listings and demand from buyers. (New sellers were down 14.9% in 2019!). Already there is evidence of buyers completing before Christmas now the election result has passed. However, the reality of still negotiating our exit terms from Europe will dominate headlines and act as a brake on this pent up demand.
Interest rates will stay at their current level as the country navigates its exit from Europe, and the new Governor of the BOE settles into the role. This will continue to support property prices, but only with small gains – Savills predict a national average growth of c 1% for the year (up from 0.5% in 2019). We must remember that its affordability that is key to stable property prices and the gradual improvement in real wages is helpful, but it is likely that 2021 and beyond will be the period when prices accelerate again once our future trading arrangements are settled.
Despite dropping the pledge from the manifesto, emboldened the new government will reform Stamp Duty in its February budget – this will provide a boost to higher value property transactions, the part of the market that has been most inactive. Financing the development of units with values over £1m has become so difficult that I believe there will be a lack of new build supply in this part of the market when the demand returns.
Rental growth will outpace house price growth. Rents rose by 2.1% in the year to November 2019 (up from 1.1% in 2018). This was mainly due to a 7.8% reduction in the number of homes to rent. As the sales market picks up I believe more developers will look to sell stock they had been forced to hold. This will further reduce supply of rental stock and drive rents higher. There will no change to additional stamp duty on second/investment property, nor will interest tax relief be adjusted so non professional landlords will continue to shy away from buying investment property. Overall similar rental growth seen in 2019 will repeat in 2020, 2% growth.
Overall 2020 is likely to be a year of modest economic growth. Property will see a bounce in activity, but prices will remain flat with negligible gains. This is however a welcome outlook given the spectre of socialist economic policies that loomed on the horizon at the end of 2019.
Lifting our horizon a little further it is likely that once there is clarity on the trading relationship the UK will have with Europe and the rest of the world we could see a marked pickup in economic investment. This should feed through to wages and once we see growth here the room will exist to see house prices pick up. Indeed, this is what commentators are concluding as they predict 15% house price growth over the next five-year period.
It is this medium-term outlook, rather than the short-term 2020 picture, that should provide developers and investors with the confidence they need to commit to the opportunities in the market today.