Pent-up lockdown demand and impact of working from home feed in to Savills' upgraded house price forecasts
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A PROPERTY group has upgraded its house price forecasts and shared some home truths about the Scottish market.
Savills has changed its 2021 UK house price forecasts from zero to four per cent growth.
And the firm has speculated that the experience of working from home for many during the Covid-19 pandemic may feed in to future property demand with a premium on more space and surrounding green areas.
Its new five-year forecast anticipates total house price growth of 21.1 per cent by the end of 2025 for the UK – and a slightly higher figure of 22.8 per cent for Scotland.
The new findings – presented at Savills Scottish Home Truths being hosted online today – predicts:
·UK housing transactions to hit 1.4m in 2021 before falling back to a norm of 1.2m by 2023
·Interest rates are expect to remain low, supporting growth: base rate is assumed to hit just 0.5 per cent by 2025, according to Oxford Economics
·Following the experience of lockdown, changing lifestyles and the search for more space will continue to drive sales.
The upgraded forecasts follows an unexpectedly strong market in 2020, which saw prices rise by 6.4 per cent during Q4 2020 compared to 2019 Q4 in the UK and 3.2 per cent in Scotland - the first time in modern history that house prices have risen in a recession - as people’s desire to move home outweighed the uncertainty surrounding jobs and finances.
Faisal Choudhry, Savills head of residential research in Scotland, said: “2021 is going to be a complex and uneven year, with competing forces impacting the housing market at different points. The outlook has improved since the beginning of the year given the speed of the vaccination programme, the expected relaxation of social distancing measures on both sides of the borer and government support for jobs and for the housing market.
“New data reveals ‘sales agreed’ remain well above the pre-pandemic norm, with the same true of mortgage approvals. That points to a strong first half-year which, together with the introduction of the mortgage guarantee scheme, underpins our expectation of 1.4m transactions in 2021.”
Savills predict a "particularly strong" market performance in Scotland, where lower ‘house price to household income’ ratios leave more capacity for price growth. Scotland will continue to attract local upsizers and buyers relocating from other regions.
Price sensitivity will remain a factor this year, Savills says, "but the value gap between London and Scotland will drive the market".
However, it predicts price growth will continue to be moderated by buyers’ spending power over the next one to two years and notes that once an economic recovery takes hold, the government may try to recoup some of the pandemic support costs through taxation. Longer-term implications of Brexit might also impact consume spending.
It says the Scottish residential market has thrived during the pandemic, as it has in England and Wales. Its exceptional performance was initially driven by the release of a pent-up demand from buyers who had been waiting in the wings during the first lockdown for the market to reopen in June.
Extended periods of time spent at home appeared to cause potential buyers to reassess how and where they want to live, resulting in a renewed appetite for space and a greater commitment to moving in the short to medium-term. Consequently, the number of agreed sales in Scotland in the last six months of 2020 was 36 per cent higher than the same period in 2019.
This activity is now beginning to feed official data, with Registers of Scotland reporting the number of sales between October and December last year were 28 per cent higher than during the same months in 2019. Despite the ongoing lockdown and adverse weather conditions in Scotland, market momentum is continuing with transaction levels in January being 12 per cent higher than January 2020.
Analysis of Savills own data "provides cause for future optimism": the number of buyers who registered to buy property in Scotland rose by 61 per cent in the first two months of the year (compared to the same period last year) and there was a 54 per cent increase in agreed house sales.
Buyers’ quest for more space has triggered a revival in Scotland’s country locations, particularly from town and city dwellers. The number of buyers from Scottish cities purchasing Savills properties in surrounding areas during 2020 was more than double the number in 2019.
First time buyers are an important pillar of the overall housing sector, allowing up-sizers to move and ensuring the wheels of the market continue to turn. The firm said it was "disappointing" that despite last week’s UK Government announcement that the nil-rate Stamp Duty band up to £500,000 will be extended until the end of June south of the border, Holyrood confirmed Scotland’s Land and Buildings Transaction Tax (LBTT) holiday will end on April 1.
It said: "The nil threshold for LBTT had been raised from £145,000 to £250,000 last July and we saw a welcome surge in the number of first time buyers in the Scottish market last year as a result. Indeed mortgage lending to first time buyers increased by 77 per cent from 16,200 in 2011 to 28,600 last year and it is now on a par with lending to existing home owners. Supporting buyers with small deposits is key to widening access to home ownership so it’s encouraging that the Scottish Government’s First Home Fund will continue."
In addition, the Help to Buy Mortgage Guarantee will be available to first-time buyers as well as current home-owners buying a property for up to £600,000. The initiative will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5 per cent, with the option to fix their initial mortgage rate for at least five years, giving certainty over repayments. Open for mortgage applications from April and will run until December 2022, the scheme will particularly benefit lower value markets like Scotland, where a 95 per cent mortgage is more attainable.
It said: "Despite the surge in sales, price growth has remained relatively modest with a 4 per cent annual rise in average transaction price in Scotland, from £180,874 in 2019 to £188,872 last year. This has been driven by pragmatism on the part of both buyers and sellers. Looking to the year ahead, the impact of the pandemic on the economy is likely to be more keenly felt UK-wide in 2021 and we therefore expect such price sensitivity to remain a feature during 2021.
"However low interest rates and the commitment people have made to moving will continue to drive those looking to move. Confidence is likely to be further boosted as the rollout of the Covid-19 vaccines progresses. It will be interesting to see what the legacy of the ‘work from home’ experiment will be and whether the recent renewed appreciation of greener locations will remain a feature of the market. We expect supply constraints to lift prices in particularly desirable hotspots, with good quality and appropriately priced properties continuing to receive competitive bids."
Related: Covid crisis feeds surge in property sales
