The last few years have been trying for the London property market. Covid-19 is the most immediately apparent source of trepidation and uncertainty, but it is not the only source of London’s current woes. The other elephant in the room is Brexit. Both of these events present enormous challenges for London’s property market in both the short and long-term.
No one is quite sure how these situations will play out; both are unprecedented for the UK. There is little doubt that London’s property market will survive. But the road ahead is going to be a difficult one.
What Factors Are Affecting The London Property Market
Either Brexit or Covid-19 in isolation would create problems for London’s property market. That the city is facing both challenges simultaneously only makes them each more damaging. The fact that there is still so much uncertainty about what Brexit will look like is further exacerbating the situation.
In fact, uncertainty is very much the name of the game right now. Anyone who is considering buying or selling property in the Greater London area needs to be mindful of this uncertainty. As things currently stand, the UK is going to sever ties with Europe in just over three months. The shroud of uncertainty that hangs over the UK’s future relationship with the EU means that it is challenging for even the most experienced property investors to predict what will happen over the next year or two.
The damage to London’s property market from the Brexit vote began before we even had the referendum. As the big day approached, it became clear that a leave victory was a possibility. This possibility was enough to send jitters through the market, slowing it accordingly. When leave won the referendum, many market analysts were relieved, despite London voting heavily to remain in the EU. Investors hoped that the results would end the uncertainty. However, the result turned out to be the beginning of the uncertainty, not the end.
Before the referendum, London’s property market had been growing steadily. The vote to leave stalled that progress, and the market has since struggled to regain its momentum. Many analysts had projected that London’s property market would be shielded to some extent by wealthy foreign investors. These investors would take advantage of a weakening pound to purchase more property in the capital.
But whatever benefits the Brexit vote may have brought to London’s property market were negated by the emergence of Covid-19. The pandemic bought the entire industry to a standstill for a few months. The property market is only just beginning to open up again, and it is far too early to say when or if it will return to its pre-pandemic levels.
What London Property Market Predictions Are The Professionals Making?
In times of uncertainty, investors turn to analysts and other professionals who make their living predicting the future. At the best of times, making predictions about the property market is an imperfect science. Numerous factors can affect the market’s performance. Even with the benefit of knowledge and experience, it isn’t always easy to predict the interplay between these factors.
Covid-19 and Brexit both present unique challenges for the property market because they are unprecedented. Even the best analysts are trying to make predictions and draw conclusions regarding situations that they have never encountered before. In short, the exceptional nature of current events is making things challenging for analysts and investors alike. With those caveats in mind, we can still learn a lot by listening to what analysts are predicting.
While there is a consensus emerging about the broad strokes, the details of the market’s expected trajectory vary from analyst to analyst. For example, most property analysts are forecasting a drop in house prices this year. But most expect prices to rebound to some degree reasonably quickly.
Reuters conducted a poll of property experts. The consensus from this pool of experts was that property prices would fall by around 5% this year before rebounding 1.5% in 2021 and reaching 3.5% by the end of 2022. Under this model, prices would not recover until 2023 at the earliest.
Similarly, Lloyds Banking Group predicted the same 5% drop but were more optimistic about the recovery, forecasting a 2% rebound by the end of 2021. Knight Frank expect prices to fall, but by 3% rather than 5%. But they are also anticipating a rise of 5% in 2021, which could lead to a net increase in house prices of 2%.
While the majority of analysts are making relatively precise predictions, Savills was one of the few who seems to have accepted the uncertainty. According to Savills, this year will see a price drop of between 5 and 10% and a recovery of roughly half that value in 2021.
Finally, Zoopla is another outlier in that they are predicting a straight-up increase in property values as the pent-up demand that has been building since the introduction of lockdown is released.
Is Now A Good Time To Invest In The London Property Market?
This question is the big one for many people. Whether you are considering buying property as an investment or because you are looking for a new home, the question of whether you should be buying right now is a difficult one for many. There is always a degree of uncertainty involved in the property market. No one has a perfect crystal ball they can use to see the future. But there is clearly a great deal more uncertainty in the property market right now than there usually is.
Irrespective of the type of property that you are investing in, there are some simple things that you can do to mitigate the unavoidable uncertainty. For investors, it is more important than ever that they are working with reliable and trustworthy developers. Similarly, having a tenant lined up and in place will give you one less thing to worry about. The value of any property to an investor immediately increases if it comes with a reliable tenant. This principle applies to commercial and residential properties in equal measure.
You can also try to use the current situation to your advantage. The ongoing market uncertainty, coupled with people’s anxieties about the future of the property market, means there are a lot of sellers who are more willing to negotiate than they otherwise would have been. Developers who have newly-built properties that they need to fill have been scrambling to find suitable tenants. No one could have predicted the pandemic. The time between the virus first emerging and the implementation of lockdowns was just a few months. This brief window gave little time for developers who already had projects underway to take measures to protect themselves.
Another potential silver lining of uncertainty in the property market is that there are some real bargains to be had at auction. Purchasing property at auction has always been an effective way of sniffing out good deals. But with the Covid-19 pandemic driving up unemployment and damaging businesses, the range of properties going under the hammer has increased.
All things considered, there is no reason that investors should be scared away from investing in London property. However, if you are going to invest, you must take into account the ongoing uncertainty. If possible, you should also aim to set aside more money than usual to act as a cushion against any losses you might incur on the market.
When Will The London Property Rental Market Recover?
This question is another one that everyone wants to know the answer to. However, no one can say with any certainty how long it is going to take the market to recover. As we outlined above, most analysts are predicting some kind of rebound over the next few years. But few people are anticipating that we will return to our pre-pandemic market before 2023.
It isn’t just house prices that will need time to correct themselves. The pandemic has also heralded changes in consumer behaviour and has shifted priorities for many. Whether these changes will revert as predictably as house prices eventually will remains to be seen. There may be long-term changes to society as a whole resulting from the pandemic, and these could lead to permanent changes in behaviour.
For example, now that working from home is much more commonplace, and many businesses are toying with the idea of offering it permanently, people’s priorities when buying property may well be different. Working from home means that it is less important for people to consider commuting when choosing a home. It also means that consumers will place a greater emphasis on the local internet infrastructure and gravitate towards properties that have room for a study or workspace.
With all the speculation about how Covid is going to reshape our world in the long-term, anything seems possible. But for the London property market, the double-whammy of Covid and Brexit is creating an impenetrable storm of uncertainty. Anyone planning on buying or selling property in the near future needs to factor this uncertainty in when they are making their choices.