The London property market got off to a tremendous start this year. Long, drawn out Brexit negotiations gave way to pent up demand, and property buyers were raring to go early in the new year. I can’t think of a time when we moved from a buyers’ market to a sellers’ market so quickly, and buyers had to be swift to secure a property.
And then Covid-19 arrived. If the market turn-around at the start of the year was a surprise, then watching it all grind to a halt overnight was extraordinary. As the UK came to terms with the human cost of this tragedy, everything else simply paled into insignificance. And rightly so.
Since then, we’ve been having daily conversations with clients and other property professionals about what lies ahead for the property market and the economy as a whole. I doubt even the smartest economists know the answer to that, so I’m approaching it in the same way as I approached Brexit. Focus on the things we do know, not the things that we don’t. If you are in the market to buy a property – whether as a home, or as an investment – here are some things to bear in mind:
- The market will recover
This isn’t the first market crisis we’ve had, and it certainly won’t be the last. While we don’t know how deep the downturn will go and how long it will last, it will recover. Take the 2008 financial crisis as an example. As you can see from the graph below, the average London property price took a significant hit, but by 2018, the average property price had risen by over 65% since the peak.
When the UK voted to leave the EU in 2016, London property prices fell up to 5%, but by the end of last year, they had bounced back and were on the rise.
If you are investing in property, you should consider it as a medium to long term investment. That means owning it for at least 5 years, but preferably 10 years or more. On that basis, history tells us that you will still make a good return on your investment, even if the market falls or stagnates in the short term.
- A return to a buyers’ market
Whether you’re investing in the stock market or property, buying during a downturn is almost always an opportunity. The average property price in London fell 20% as a result of the financial crisis of 2008 and around 5% throughout Brexit negotiations. It’s too early to tell how far property prices will fall, if at all, but buyers can expect to be in a strong position. A far cry from where we were only a month ago, when the shoe was very much on the seller’s foot.
- Stamp duty will increase for foreign investors
In March, the UK government confirmed they would be levying an additional 2% stamp duty on UK properties bought by overseas investors and expats after 1st April 2021. If you are an international investor, it makes sense to consider buying sooner rather than later. That way you avoid the extra levy and take advantage of a buyers’ market. If you are a UK investor, you should be aware of this levy as it could cause prices to rise as we approach the April 2021 deadline.
- London continues to have a supply and demand issue
One of the reasons the London property market bounced back so quickly after the Brexit deal was complete, is that the city still has a supply and demand issue. All investors needed was some certainty that London would still be open for business, and confidence in the property market soared.
- Markets look for certainty
Most market downturns are fuelled by uncertainty, and that’s certainly the case for this current crisis. Once certainty returns, markets can bounce back very quickly, which is what we were seeing at the start of this year in the aftermath of Brexit. The arrival of a Covid-19 vaccine, or even a hint that people are heading back to work, and life is returning to ‘normal’, could be enough to bring back buyer confidence. And that might be sooner rather than later.
In summary, my advice to would-be property buyers is, don’t panic. If you are in the process of buying a new home, or you were on the cusp of investing in a London property, then hold firm. Avoid making decisions based on fear. Focus on the value a property has to you over the long term, whether it’s a happy family home or an investment that will grow in value over time and will ultimately supplement your pension. The rest will fall into place.
Most importantly, right now, focus on staying at home and looking after your health and your family.
If you would like to invest in property, and would like to discuss some of these findings in more detail, please email me at email@example.com