The last few months have certainly shaken the UK property market, with the housing market grounding to a halt during lockdown. As restrictions are lifted and house moves can go head again, the option of buying investment properties in the UK is once more on the table. The UK property sector has long been known for its robustness in times of uncertainty, with house prices still rising even amid the uncertainty of Brexit; but will the market weather the current coronavirus crisis in the same way?
How has the market fared so far?
Despite a huge crash in the stock market this spring, which saw investors losing up to 30% of their investments, the UK housing market hasn’t yet suffered too badly. A “>survey conducted by the Royal Institution of Chartered Surveyors showed that in February 2020, property prices in the UK rose at the fastest rate since July 2018. The market in the UK will no doubt be affected in some way by the impact of many people’s loss of income during the pandemic, both because some people are self-isolating and others have lost jobs or been furloughed on 80% of their salary. However, the UK government have made moves to mitigate the damage caused by lockdown by offering mortgage holidays to those who are struggling to pay mortgages, helping to prop up the housing market during the toughest of times.
The future of property prices
One of the primary considerations any buyer will make before investing in property is what’s expected to happen to house prices over the coming years. In the long term, UK house prices have always risen, making them a solid enough bet that phrases like ‘safe as houses’ have become commonplace in the English language. In the short term, a recession or market crash can certainly have a significant impact on property prices. UK estate agent Savills have recently published their updated forecasts for property price changes across all regions of the country. On the whole, Savills predict that house prices will drop by 7.5% in 2020, but steadily rise by 4.5-8% over the coming years, resulting in a 15.1% average property price rise in the next 5 years. Savills are predicting the highest price rises will come in the North West (24.1% over 5 years), with the lowest in London (4% over 5 years). Of course, forecasts like these are far from certain, but it gives investors an idea of what the experts are thinking so far. Many estate agents have expressed surprise at how quickly the property market has already bounced back from lockdown, with many moves completing quickly and rural areas particularly seeing more interest. Savills transaction forecasts show a slower market throughout 2020 and 2021, before catching up in 2022 and beyond.
The pros and cons of buying UK property right now
What does this mean for people in the UK who are considering making a property investment in 2020? There are clear pros and cons to investing this year.
Pros of buying UK property in 2020
– Stamp duty relief. Rishi Sunak has announced significant stamp duty tax relief for all residential property sales completed before March 31st 2021. The changes mean that ‘own home’ purchases of up to 500,000 will be stamp duty free, while investment properties will carry just 3% tax all the way up to 500,000. This is just one of the relief efforts the government offers, as another example a company developing products can receive tax relief, see here for the R&D Tax Claim Explained. So in retail sales, how do this tax relief fair? For comparison, a 500,000 buy-to-let property would previously have come with a 5% stamp duty tax rate, or 10,000 more in fees. – You might be able to grab a bargain. With house prices dropping 7.5% in 2020, this year could be the perfect time to shop for cut price houses and reap the rewards of price rises over the coming years, provided investors are willing to weather an initial period of uncertainty.
The cons of buying UK property in 2020
– There may be less choice on offer in some regions, especially London, as people are more reluctant to sell when prices are low. Viewing properties, too, may in some regions be a little different than usual and prospective buyers may find it difficult to make multiple visits. – Job losses and economic uncertainty may make investing in buy to let properties riskier in the current climate. If tenants struggle to pay rent landlords may be able to secure a mortgage holiday for the moment, but these holidays are only temporarily on offer. If the UK does fall into a longer recession and unemployment rates rise, some landlords may find it difficult to find reliable tenants.
Raising finance to buy property
Another consideration to make is how easy it is to raise finance in the current climate. Many mortgage lenders have eased off on lending to buyers with lower amounts of equity against their property – 25% or less – which makes getting a mortgage with a smaller deposit quite tricky. Some lenders are only lending to those with a 35% deposit or more; it’s worth discussing your situation with an independent mortgage broker or two to get an idea of whether you’ll be able to finance your property investment with a buy to let mortgage this year. One positive to come out of the situation is the cut to interest rates made by the Bank of England back in March, which saw the base rate lowered to just 0.1%. However, some buy to let mortgage rates have more recently started to increase, so prospective landlords may want to keep an eye on these when buying.
Is UK property still a winner?
Unless forecasts change, the UK property market still looks to be a strong prospect for investors even in 2020, particularly if buyers can take advantage of reduced stamp duty and lower mortgage interest rates. The biggest concern will be keeping buy to let properties tenanted during a possible recession, which means investors without the funds to weather periods of vacancy should think very carefully before buying BTL properties this year.