The impact of COVID on the UK economy is not anticipated to be as bad as original predictions. There may be some longer-term implications, for example the desire for more working from home and a change of recreational activities. During the past year households generally increased the amount they saved although the level of savings is anticipated to slowly reduce as the UK consumers spending returns to more normal levels. A recovery is expected by Q1 2022 and the predicted GDP for 2021 is anticipated to be at a record level.
The Government expect unemployment to increase although this has been delayed and softened by the furlough scheme. However, the scheme ends soon and at that time businesses may suffer resulting in increased unemployment. An increase in unemployment could result in homeowners defaulting on mortgage payments or similarly not being able to afford rent. With the growth in GDP may also be opportunities within the workforce and as such a long term increase in unemployment Is not expected. In 2020 we saw record redundancies although the share of people who are economically inactive remained largely unchanged indicating that those made redundant sought employment when social distancing measures were relaxed.
Inflation is predicted to increase and as such interest rates are also likely to rise (although they can’t really go lower). The predicted increase in inflation has prompted concern that an increase to interest rates will impact mortgage affordability. However, the change in base rate is not predicted until 2023 and therefore rates should remain low and attractive to those with sufficient equity.
According to Nationwide, house prices grew by 0.7% in June. The annual UK house price growth is the highest since November 2004 (at 13.4%). The strongest annual growth was seen in Wales (13.3% and then Yorkshire and Humber (13%). Scotland had the weakest growth.
The pace of house price rises is unlikely to be sustained. Buyer demand has cooled off although above historic levels. The reversal of the cut to stamp duty is a likely factor decelerating demand. The stock of homes for sale was also down (24%) in the year to mid-June compared to the previous years’ average. The lower number of homes for sale should help maintain property values.
It is anticipated that as the economy opens up more, more households will feel confident about listing their house and conducting viewings. This should also close the supply / demand gap and cool price growth. A ‘correction’, which would be associated with a bubble is not expected.
The average UK rent has increased 1.2% in the year to May 2021. Rents grew more in the East Midlands (2.4%) and the South West (2.3%). Rents in London fell marginally.
The underlying issues that have resulted in the UK housing market being inaccessible to many remain in place. There is an overall shortage of housing stock and limited resources such as labour with which to build more. There is a significant need for social and affordable housing. Housing associations and local authorities are tasked with significant objectives to provide supported living accommodation. The younger generation come into the labour market often with debt and on salaries which do not afford them the ability to become homeowners. The reality appears that the UK housing market will continue to shift from home owners to long term renters.
A change in lifestyle preference and people working remotely may continue to impact the demand on types of property or accommodation. Long term preferences may now lean towards outside of cities and property with more space to permit home working.