It’s never easy to forecast what will happen with the property market - and with Brexit around the corner, it’s made even harder. But experts at Romans have made some informed predictions…
To enable us to predict what will happen in 2020, it’s important to recognise what’s currently happening in the property market. With Romans local knowledge and the help of financial forecasts about the economy, interest rates and property affordability, our property experts can assess whether the number of buyers, sellers and renters is expected to go up or down - and how this will influence prices and rents.
Property prices really are a “postcode lottery”
“Like you, we read lots of conflicting information about property prices. One minute it is reported prices are going up, the next it’s falling,” says Kevin Shaw, National Sales Managing Director. “Both are actually correct. In our experience, during 2017 and 2018, fluctuations in the property market depended on your property type and the postcode you live in.”
The reality is a property will sell for what people are willing - and able - to let it go for. While a buyer will drive prices down if they have lots of properties to choose from, and up if they have to compete. “That’s why we’ve seen different property types in nearby postcodes go up, down and stay the same,” adds Kevin.
In London and the South East we saw the market fully recover from the credit crunch quite rapidly. Local economies recovered well and a general shortage of homes in these areas meant there was a higher number of people wanting to buy than sell. Prices have recovered since 2007, and are 60% higher than 12 years ago in London - and just under 40% higher in the South East.
But due to restrictions on the amount mortgage lenders can lend and new measures of affordability, prices have risen to a level where demand is reducing. This, in turn, is causing prices and sales to remain at similar levels to last year, or, in some cases, experience falls.
In the areas Romans covers, there has typically been a slowdown in activity, which Kevin believes is for two reasons. “Firstly, the additional activity post the credit crunch has now abated,” he says. “And secondly, because for some, buying or selling with the fear of how Brexit would impact the market has meant some have held off making their decision to move.”
What does the future hold for lettings and landlords?
Romans' Lettings Director, Richard O’Neill, feels the outlook is bright for investors: "There’s an air of certainty across the property market following the general election result at the end of last year. In a recent survey, 92% of landlords we asked said they were looking to retain or expand their portfolio - which shows real confidence.”
Rental prices usually move in line with wages. With people receiving, on average, a 3.6% rise in earnings year-on-year, Romans saw healthy rises in rents in 2019. "While Romans' landlords rents were a bit more subdued at the start of the year due to lower demand, rates accelerated 2% in the six months following the tenant fee ban in June," said Richard. Romans expects rents to continue rising through 2020.
In addition, mortgage rates are likely to remain extremely competitive, which can help investors maximise the profitability of their properties. “We would encourage our landlords to seek professional, independent mortgage advice, as restructuring how the portfolio is financed can make a significant difference to the return.”
Richard concludes: "We know landlords are still dealing with the loss of mortgage interest relief, taxation increases and Stamp Duty hikes, so it's never been more important to get the right advice on how to get the most from your investment.”
What do economists predict for property in 2020?
Over the last 30 years, the amount of data on property prices and rents has improved substantially. There has also been a better understanding of how the property market changes due to economic growth – or recessions. With help from economic research consultancy firms Capital Economics and PwC, we can see what they think will happen next year economically, and how this will impact on the property market:
Forecasts from Capital Economics
Capital Economics predicts interest rates will remain the same in 2020, or may even be reduced to 0.5% (currently 0.75%). “If this happens, this could improve affordability which may encourage more buyers back into the market,” reassures Kevin.
Wages are also expected to rise in 2020, but not at the same rate year-on-year. So with wage rises slowing and inflation still expected to increase at just under 2%, although Capital Economics predicts people will be better off in 2020, it doesn’t believe this is enough to drive more people into the property market. However it does estimate house price growth to creep up “between 1% and 2% per year” over the next few years.
There is better news for landlords who are investing (or thinking of investing) in residential property, as Capital Economics believes rent will continue to rise, increasing “total returns on housing from 4.1% in 2018, to 5.7% in 2021.”
Forecasts from PwC
PwC predicts a rosier future for homeowners looking to sell, with property price forecasts suggesting increases by 2.1% in 2020 and 3% in 2021 respectively.
On a regional basis, it believes London prices will rise by 1.0% in 2020, with a higher increase of 3.2% in 2021 and 2022. While in the South East there may be a rise of 0.4% in 2020 and 3.1% rises for 2021 and 2022.
Unsure of the value of your property?
“In summary, as long as there aren’t any economic shocks to the UK, expectations for 2020 are that the market will improve, particularly now we have political clarity,” says Kevin. “In other words, prices are likely to rise, as confidence returns.”
If you are thinking of moving home or investing in property in 2020, speak to one of our property experts in your local branch. We’d love to help you create a property plan for next year. Find your local branch here.
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