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Forecasts 1 / 19
ForecastsSeptember 2020
1 / 19
Contents
Source: ONS
Introduction
Economic backdrop
The mortgage market review
Sales market update
House price forecasts
Forecasts across the regions
Transaction forecasts
Rental market update
Rental growth forecasts
3
6
8-9
4-5
7
10-13
14
15
16-17
2 / 19
Introduction
Despite Government intervention through
the furlough and other support schemes,
anxiety is mounting about the pace of
economic recovery. It is likely that the
most painful consequences of the
pandemic may not be felt until next year.
Against this dispiriting backdrop, the
housing market has outperformed
expectations since its re-opening in May.
And the market has become almost
detached from the economic
fundamentals.
The stamp duty holiday, introduced in
July, has provided a significant boost. But
it is unclear whether this growth is
sustainable. Can the market weather the
immediate challenges ahead? Or will the
economic scarring inflicted by the
pandemic impede growth on a long-term
basis?
Real GDP fell by 20.4% in Q2 2020, the largest quarterly contraction on record
Quarterly GDP Index (2019 Q4 = 100)
Source: ONS
The housing market has bounced back
from the lockdown freeze. But this
recovery may not be sustained as
unemployment rises.
Over the last few years the UK housing
market has been beset by Brexit
apprehension and existing affordability
barriers. But in 2020, these fears have
been far outweighed by the impact of
Covid-19.
The unprecedented effects of the
pandemic have caused the UK
economy to fall into the deepest
recession since records began, raising
unemployment and reducing earnings
among some of those who remain in
their jobs.
At the peak of the outbreak, as many as
8.9 million people were on furlough,
with 15% of these workers expected to
lose their jobs, according to the Office
for Budget Responsibility (OBR).
76
78
80
82
84
86
88
90
92
94
96
98
100
102
2008
Q2
2008
Q4
2009
Q2
2009
Q4
2010
Q2
2010
Q4
2011 Q
2
2011 Q
4
2012
Q2
2012
Q4
2013
Q2
2013
Q4
2014
Q2
2014
Q4
2015
Q2
2015
Q4
2016
Q2
2016
Q4
2017
Q2
2017
Q4
2018
Q2
2018
Q4
2019
Q2
2019
Q4
2020
Q2
3 / 19
Economic Backdrop
Government support has helped
limit the economic damage
caused by the pandemic, but
many of the deadlines for the
withdrawal of emergency
funding have been pushed back
into 2021.
The decision to prolong state
support could safeguard more
jobs, buying time for the economy
to recover. But economists are
tempering their previous
optimism, shifting away from the
prospect of a rapid V-shaped
recovery to a more gradual one.
Economic shocks, such as those
inflicted by Covid-19, can
permanently damage an
economy’s future growth rate – in
a process known as ‘scarring’. The
level of scarring will depend on
how quickly the virus can be
brought under control, the pace of
economic recovery, and the
effectiveness of policy measures
in supporting jobs.
Our housing forecasts are based on
the OBR’s central forecast of a 12.4%
decline in economic output this year.
But growth is expected to rebound to
8.7% in 2021, assuming a trading
arrangement is agreed with the EU by
the end of the transition period.
GDP is set to rise by 4.5% in 2022 and
2.1% in 2023 as the economy falls back
in line with its longer-term growth
trajectory. Nevertheless, the economy
may remain 3% smaller after five years
than would have been the case
without Covid-19.
The direction of the housing market is
largely determined by employment
and the true extent of the pandemic’s
effect on jobs may not be clear until
next year.
We expect job losses to peak in the
first half of 2021, after the unwinding of
the furlough scheme and the ending of
the job retention bonus grant in
GDP 1.4% -12.4% 8.7% 4.5% 2.1%
CPI inflation 1.8% 0.7% 1.3% 1.9% 2.0%
Unemployment (million) 1.3 3 3.5 2.4 2.1
Unemployment rate 3.8% 8.8% 10.1% 6.9% 5.9%
Earnings growth 2.8% 0.2% 3.7% 2.7% 3.0%
Bank of England base rate 0.7% 0.0% 0.0% 0.1% 0.1%
2019 2020 (F) 2021 (F) 2022 (F) 2023 (F)
OBR Economic Forecasts
Source: OBR
The economy has taken a hit this year, but the real effects will not be felt until 2021
January 2021. The OBR expects
around 15% of the current 4.8 million
furloughed workers to lose their jobs,
which would take unemployment to a
record high in 2021. The jobless
count seems set to remain above
2019’s historic low of 3.8% until at
least 2023.
There are many risks on the horizon,
including the consequences of a no-
trade deal Brexit, a second wave of
Covid-19 or delay in the arrival of a
vaccine. Yet if a vaccine, or an
effective Covid-19 treatment become
available more swiftly, a quicker
economic recovery is still possible.
To date, the pattern of
unemployment has not been uniform.
A division is opening up between
those whose earnings have been
unaffected, and those who have had
to take an income cut or lost their job.
The latest ONS data highlights that
the young, who are likely to be
renters or would-be first-time buyers
4 / 19
Economic Backdrop (cont...)
have been hardest hit. This will have an influence on
both the sale and the rental markets.
Higher income workers, particularly those in London
and the South, have been more able to work from
home. As a result, they are less likely to have lost their
jobs and, in some cases, have increased their savings.
The Institute for Fiscal Studies (IFS) says that 58% of
workers in London have jobs that can be done from
home, compared to 38% in the North East.
But there is some good news. People’s incomes are
expected to keep rising, albeit by just 0.2% in 2020.
Thereafter, earnings will increase by 3.7% in 2021, 2.7%
in 2022 and up to 3.0% in 2023. If inflation remains
low, as forecast, this should boost living standards.
Source
South West
East Midlands
South East
London
East
Yorkshire and The Humber
Scotland
Wales
North East
West Midlands
North West
Great Britain
0 1% 2% 3% 4% 5%
Change on quarter
Rate
The South West recorded the biggest increase in the unemployment rate in GB
Source: ONS
Unemployment rates by region, seasonally adjusted, May to July 2020
Young people, aged 18 to 24, have been among the worst affected by job cuts, along with workers
over the age of 65
Quarterly change in employment (SA)
Source: ONS
-300K
-250K
-200K
-150K
-100K
-50K
0
50K
100K
150K
200K
250K
Jan-
Mar
201
8
Feb-
Apr 2
018
Mar-M
ay 2
018
Apr-J
un 2
018
May-J
ul 2
018
Jun-
Aug
2018
Jul-S
ep 2
018
Aug-
Oct
201
8
Sep-
Nov
201
8
Oct-D
ec 2
018
Nov-J
an 2
019
Dec-F
eb 2
019
Jan-
Mar
201
9
Feb-
Apr 2
019
Mar-M
ay 2
019
Apr-J
un 2
019
May-J
ul 2
019
Jun-
Aug
2019
Jul-S
ep 2
019
Aug-
Oct
201
9
Sep-
Nov
201
9
Oct-D
ec 2
019
Nov-J
an 2
020
Dec-F
eb 2
020
Jan-
Mar
202
0
Feb-
Apr 2
020
Mar-M
ay 2
020
Apr-J
un 2
020
May-J
ul 2
020
Apr-J
un 2
020
Aged 16-17
Aged 18-24
Aged 25-34
Aged 35-49
Aged 50-64
Age 65+
Total
5 / 19
The mortgage market
In the early months of lockdown,
mortgage lenders became more
risk-averse. Many tightened their
lending criteria and withdrew the
higher loan-to-value mortgages that
most first-time buyers need. But
recently the availability of these
products has improved.
But due to the lessons learnt from
the previous financial crisis, lenders
will manage any growth in arrears to
limit the impact of forced sales on
the market. They also have a range
of other tools at their disposal, such
as putting households on interest
only repayments, to help manage
and spread any increase in
repossessions next year.
While lenders may remain cautious
about lending on larger mortgages
and those perceived to be more
risky in the first half of next year, we
expect the mortgage market to
return close to pre-covid times in H2
2021.
The good news for anyone taking
out a mortgage is that interest rates
are set to stay lower - for longer. The
Bank of England base rate is
expected to edge down towards 0%
in 2021 before rising to just 0.2% by
the first quarter of 2025 according to
the OBR. This will support the
housing market by keeping
borrowing costs low for households
who are re-mortgaging, or for those
making a new purchase.
020K
40K60K
80K100K120K
140K160K
180K200K
220K240K
00.5%
1.0%1.5%
2.0%2.5%3.0%
3.5%4.0%
4.5%5.0%
5.5%6.0%
Feb-
07
Oct-0
7
Jun-
08
Feb-
09
Oct-0
9
Jun-
10
Feb-
11
Oct-11
Jun-
12
Feb-
13
Oct-13
Jun-
14
Feb-
15
Oct-15
Jun-
16
Feb-
17
Oct-17
Jun-
18
Feb-
19
Oct-19
Jun-
20
Mo
rtg
ag
e a
pp
rova
ls
Ba
se r
ate
House purchase Remortgage Base Rate
Mortgage approvals took a hit over lockdown, falling 65%
year-on-year in May
Source: Bank of England
Lenders are more cautious, but low interest rates will support the market over the next few
years
Support from government and
lenders has protected mortgaged
homeowners. As many as 1.9 million
of the 11 million households with a
mortgage have taken advantage of
the mortgage payment holiday
scheme which lasts until October 31.
As a result, arrears have been
minimal. Lenders have also only
been carrying out repossessions
which are voluntary or where the
home is empty. Additionally,the ban
on tenant evictions until September
20 is likely to delay any forced sales
by financially- distressed landlords
until mid-2021. Therefore we’re
unlikely to see the full scale of any
repossessions and forced sales until
next year.
6 / 19
Sales market review
There has been lots of talk about
the surprising strength of the
housing market recovery since
May and the role that the stamp
duty holiday has played in this
revival. But there has been less
focus on such key factors as the
cyclical nature of property
markets and how the decision to
buy a home depends on
affordability and the availability of
finance.
The housing market’s bounceback
surpassed many people’s
expectations. By early June, there
were more people looking to move
home than at the same time last
year, a trend in line with other
global property markets that have
emerged from lockdown.
choosing to put their long-term lifestyle
ahead of economic uncertainty. Most
have been unaffected by the economic
damage wrought by covid-19 and have
already built up substantial equity in
their homes.
In the early months of 2020 price
growth was strongest across the
Midlands and the North, where
affordability remains less stretched. This
is consistent with what was happening
13 years into the last property market
cycle which began in the early 1990s
and ended in 2007.
While most of 2020 has and will be
dominated by the bounce back from
lockdown, the rules of the property
market cycle still apply and will
influence what happens in the months
and years ahead.
Since the announcement of the nine-
month stamp duty holiday in July, there
have been double-digit rises in buyer
numbers in every region, with the
largest increases in London and the
South of England.
First-time buyers have been at the
forefront of the recovery. This group
may have the least to gain from the
stamp duty holiday, but in every area,
their numbers are 40% higher than a
year ago.
There has also been a bounce in home
mover numbers – up by a third
over the same period. More investors
are also looking to buy, despite tax
increases that have made buy-to-let less
attractive.
However many of these buyers are
90%
92%
94%
96%
98%
100%
102%
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
England & Wales London
Sellers achieved a record share of their asking price in England & Wales in September
Source: Hamptons International
Difference between asking and achieved prices (%)
The post-lockdown bounceback has been robust across the regions
7 / 19
Q3 2020
Oct: End of furlough and mortgage
holidays, ratification of EU trade deal
Nov: Introduction of job support scheme
The easing of lockdown combined with government support
reinvigorated the housing market, extending the summer
selling season. These sales form Q4 completions. Record
numbers of homes achieved asking prices with no price falls.
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Sep: eviction ban endsSep: eviction ban endsSep: eviction ban endsSep: eviction ban ends
Sep: eviction ban ends
Dec: Brexit transition ends
Job losses expected to increase, and Brexit uncertainty
deepens. Housing market activity likely to be maintained as
moves continue to be brought forward. Most resilient markets to
be those with the highest levels of pent-up demand and the
lowest share of people hit by income and job cuts.
A rise in the number of people trying to beat the stamp duty
deadline offsets the impact of forced sales, as lenders make
forebearance schemes available. Demand set to slow towards the
end of the quarter as stamp duty deadline passes and labour
market weakens.
Economic recovery should be underway. But unemployment is set
to peak, causing market to soften, particularly between £250,000-
£750,000. Small house price falls expected, especially in London
and the South where affordability is the most stretched.
Labour markets begin to recover, but affordability pressures
remain. Market starting to find ‘new normal’ after small price
adjustments. These sales will form Q4 completions.
Housing market should fall back in line with longer-term
growth pattern, providing economic recovery is well
underway. Northern markets which have more scope for
growth likely to show the greatest increases.
Jan: Job retention bonus grant ends
Mar: End of stamp duty holiday,
business rate relief cuts and VAT cut
for tourism & hospitality
Timeline
Apr: End of job support &
self-employment income
support scheme
8 / 19
House Price Forecasts
We forecast that house price growth will slow in
2021, before picking up again in 2022 and
2023 as incomes begin to improve and the
economy recovers, returning the housing
market to its longer-term growth cycle.
The UK may have fallen into the deepest recession on
record. But we do not expect house prices to fall this
year, forecasting instead a rise of 2.0% in Great
Britain.
What lies behind our forecast? Price growth in the
months before the Covid-19 crisis was lower than
normal, making a sharp correction less likely. The
housing market has also recovered from lockdown
more quickly than expected, partly due to movers
putting more importance on their home and also due
to the fact higher income workers, many of whom are
homeowners, are less likely to have lost their job.
The introduction of a stamp duty holiday provided a
further boost. And there aren’t any signs of households
taking on more risk with their move, with many having
already built up equity in their current home.
Sellers achieved a record share of their asking price in
September, and these late summer sales will form
completions in Q4. As a result, we forecast that house
prices will rise slightly, or remain flat across every
region in Q4 2020 compared with the same period last
year.
However, we do not underestimate the level of
uncertainty that lies ahead. The second quarter of 2021
The economic disruption caused by the coronavirus will pull the housing market from its
longer-term growth trajectory in 2020 and 2021
Greater London -0.4% 2.5% -1.0% 1.5% 3.0% 6.0%
South East -0.1% 1.5% 0.5% 1.0% 2.0% 5.0%
East -0.7% 1.0% 1.0% 1.5% 2.5% 6.0%
South West 0.3% 2.0% -1.0% 2.5% 3.0% 6.5%
East Midlands 1.3% 1.5% -0.5% 2.0% 2.5% 5.5%
West Midlands 1.1% 1.0% -1.5% 1.5% 3.5% 4.5%
North East 0.1% 1.5% 1.0% 4.0% 5.0% 11.5%
North West 1.5% 2.5% 0.5% 3.0% 4.5% 10.5%
Yorks & Humber 2.4% 2.5% 1.0% 3.0% 4.0% 10.5%
Wales 3.7% 3.0% 1.0% 3.0% 3.5% 10.5%
Scotland 1.9% 1.5% 0.0% 3.5% 5.0% 10.0%
GB 0.9% 2.0% 0.0% 2.5% 3.5% 8.0%
Prime Central London 4.8% 1.0% -1.0% 2.5% 4.0% 6.5%
2019 2020(F) 2021(F) 2022(F) 2023(F) 4Y
House price growth will slow in 2021 before returning to it's longer-term growth path in 2022
Annual house price growth forecasts
Source: Hamptons International
9 / 19
affordability is most stretched.
The cyclical nature of the housing market should not
be forgotten however. As the economy recovers, we
expect the housing market to gradually move back
towards its longer-term growth path from 2022
onwards.
Affordability will remain a barrier in some regions. But
a combination of stronger wage growth and weak
inflation will create capacity for house prices to rise
2.5% in 2022 and 3.5% in 2023 nationwide. Price
growth will equate to 8.0% over the next four years
nationally.
House price growth across the regions
House price performance will differ across the
regions, with the pace dictated by the scale of job
losses and income falls in each location.
But by 2022 we expect house prices to rise in line
with the traditional market cycle. The more
affordable parts of the North and Scotland that have
lagged behind over the last decade are forecast to
lead the price growth league over the next four
years.
will be a period of challenge given that the
withdrawal of government support will bring job
losses.
Our forecasts are based on the assumption that a
Brexit trade deal is agreed with the EU and a vaccine
becomes available in H1 2021, with no major second
lockdown. We also assume the stamp duty holiday
will not be extended or modified, which will cause
the housing market to slow following its removal.
The hit to the labour market combined with the end
of the stamp duty holiday means we expect a small
downward adjustment to house prices during Q2
2021, particularly in regions with the highest
proportion of furloughed employees, the group most
likely to lose their jobs.
A pick-up in economic recovery should settle the
housing market in the second half of the year, with
the mortgage market returning close to pre-covid
times. Overall we expect prices in Great Britain to
remain flat in 2021, with small price falls in regions
that have the weakest labour markets and where
House Price Forecasts (cont..)
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
London
South
Midlands
North
House prices in London have risen 53% over the last decade, compared to 23% outside
the capital
House price growth index since 1995 (1995=1.0)
Source: Land Registry & Hamptons International
10 / 19
House price forecasts across the regions
London
Following seven consecutive quarters of decline,
house prices started to rise in London in Q1 2020.
Yet the average house price in the capital is still
below its level in 2017.
London’s market rebounded quickly after the easing
of lockdown, buoyed by pent-up demand over the
last few years and an increase in the number of
people bringing forward a decision to move. This is
also the region where buyers enjoy the greatest
benefit from the stamp duty holiday. As a result, we
think house prices in London will rise 2.5% in 2020,
offsetting the decline of -0.4% in 2019.
However, the number of homes coming onto the
market for sale in the capital is climbing. In August
there were 78% more new instructions than at the
same time last year. The region also has the highest
furlough-take up rate in the country. We forecast that
this may contribute to a 1.0% house price fall in 2021,
when combined with existing affordability barriers,
lack of international buyers, the end of the stamp
duty holiday and an increase in the number of
households seeking to relocate elsewhere.
As the economy recovers, we expect London’s
market to return to its longer-term cycle. Since prices
have risen by 53% in the city over the last 10 years
compared with an average of 10% in the North, we
expect London to underperform Northern regions.
Prime Central London
Despite the uplift in activity early in the year,
London’s prime central market has taken much
longer to recover from lockdown, thanks to a lack of
international buyers and a leap in the number of
households leaving the city centre for more space,
particularly outdoor space.
The number of homes for sale was up by 51% year-
on-year in August, putting pressure on pricing. As a
result, we expect prime central prices to fare less
well than the rest of London over the next two years.
However in the longer-term, this part of the market
should recover quite quickly.
Prime London property is seen as a safe haven and
relatively good value on a global scale, given the
weakness of sterling. London remains one of the
most sought-after cities to live in the world and its
status would be further boosted by an EU trade
deal. We expect prices to rise by 6.5% over the next
four years, outpacing Greater London.
House price performance will differ across the regions, with the pace dictated by the scale
of job losses and income falls in each location.
House prices in London will rise 1.5% in 2022 and 3.0% in 2023, putting four-year growth at 5.5%.
11 / 19
House price forecasts across the regions (cont..)
South
Affordability pressures caused price falls in the
South East and East of England in 2019. Both
regions have a low take-up of the furlough scheme,
which suggests their labour markets may be more
resilient to the economic damage.
While the South East is set to be the most popular
destination for households leaving London, future
price growth will be capped by affordability barriers.
We expect house prices in the South East to rise in
each of the next four years, giving total growth of
5.0%.
The East is more affordable than the South East and
was seeing weaker price growth leading into the
crisis. We expect prices to rise 6.0% over the next
four years.
The South West may be the most affordable
Southern region, but it has seen the biggest rise in
the unemployment rate of any region in Great Britain
due to its reliance on tourism. We expect a price fall
of 1.0% in 2021, but by 2023, the South West should
have caught up with the South East and the East.
Midlands
The Midlands seems set to be hit hardest by the
economic impact of the pandemic. Both regions are
heavily reliant on manufacturing, one of the sectors
most affected by Covid-19. The unemployment rate
in the East Midlands rose to 4.4% in May to July
2020, the second biggest quarterly increase
in Great Britain.
House prices in the East and West Midlands grew
quickly between 2017 and the start of 2020. But due
to the pain inflicted by the pandemic on the labour
market, we expect price growth to slow this year,
with small price falls in 2021. Growth should return in
2022.
We expect the East and West Midlands to be the
weakest performing regions in Great Britain over the
next four years.
North
Over the next four years we expect house price
growth to be strongest in all parts of the North. The
top performer is forecast to be the North East, which
ranks as the most affordable region and where
prices have only risen 5% over the past decade. The
North East also has the highest number of applicants
registering for each new property, a sign of pent-up
demand. By the end of 2023 we expect the North
East to be the top performing region, with prices to
have risen by 11.5%.
At the beginning of 2020, the tempo of the market
in the North West was lively. This mood returned
after lockdown. In September, the average home in
the North West sold for 0.1% above its initial asking
price - the first time on record that the average home
was more likely to sell above its asking price.
The region should be in good stead to weather the
storm thanks to its diverse labour market. As a result,
we think prices will rise by 2.5% this year, 0.5% in
2021 and up to 3.0% and 4.5% in 2022 and 2023.
We also expect house prices in Yorkshire and The
Humber to continue rising throughout the forecast
period, reaching 4.0% annual growth in 2023.
12 / 19
House price forecasts across the regions (cont..)
Wales
House price growth has been strong in Wales over
the last few years; there was a rise of 3.7% in 2019,
the highest of any region in Great Britain. It also has
a resilient labour market, with the lowest
unemployment rate nationwide and a low furlough
scheme take-up.
As a result, we expect house prices to continue
rising, albeit at a slightly lower rate of 3.0% this year,
making it the top performing region in 2020.
After some weakness in 2021, growth should
resume, with increases of 3.0% in 2022 and 3.5% in
2023.
Scotland
Scotland’s market bounced back particularly
strongly following its delayed reopening at the end
of June. It’s also the second most affordable region:
prices have risen 19% over the last decade. We
expect house price growth to slow to 1.5% this year
and remain flat in 2021. Over the next four years we
expect prices in Scotland to rise by 10.0%.
Prime markets outside London
We expect prime markets outside the capital to out
perform price central London. These areas are
typically less reliant on overseas purchasers, buyers
have generally built up considerable equity, are less
likely to have lost jobs and an increase in moves out
of London will support pricing.
Type something
-2%
0
2%
4%
6%
8%
10%
12%
0
11%
23%
34%
46%
57%
69%
80%
Gre
ater
Lon
don
East
Sout
h Ea
st
East
Mid
land
s
Sout
h W
est
Wes
t Mid
land
s
Wal
es
Nor
th W
est
York
s &
Hum
ber
Scot
land
Nor
th E
ast
GB
Ho
use
pri
ce
fo
reca
st o
ve
r n
ext
4 y
ea
rs
Pri
ce
gro
wth
ove
r la
st d
eca
de
2020 (F) 2021 (F) 2022 (F) 2023 (F) Price growth over last 10 years
Source: Hamptons International & ONS
The regions playing catch-up will drive price growth in the longer-term
Four-year house price forecasts versus price growth over the last decade
13 / 19
The more affordable parts of the North and Scotland that have lagged behind over the last decade are
forecast to lead the price growth league over the next
four years.
10.0%
11.5%
10.5%
10.5%
5.5%
4.5%10.5% 6.0%
5.0%
6.5%
4% 5% 6% 7% 8% 9% 10% 11% 12%
Four year house price growth forecast
14 / 19
Transaction Forecasts
1.8M
1.6M
1.4M
1.2M
1M
0.8M
0.6M
0.4M
0.2M
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
(f)
2021
(f)
2022
(f)
2023
(f)
Sales completions ground to a halt
during lockdown as buyers
followed government advice to
only move home if strictly
necessary. The latest HMRC
transaction figures show that
completions in April were 57%
down year-on-year.
When the housing market reopened
in May, most movers who had
agreed a sale before lockdown
continued with their purchase.
Nevertheless, there were 25% fewer
transactions in the first six months of
2020 compared with the same
period of 2019.
Activity recovered quickly when the
market reopened, mainly thanks to
pent-up demand and an increase in
the number of people seeking more
space. The stamp duty holiday
more than in 2020, but still slightly
below 2019 levels.
Transactions should rise gradually in
2022 and 2023, exceeding the
average of the past five years, as the
economy returns to health and
Brexit uncertainties are removed.
Additionally if lenders reintroduce
additional high loan-to-value
mortgage products it is likely to
support a larger pool of first time
buyers.
However, two factors will put a cap
on transaction numbers: muted
sentiment among buy-to-let
investors and the ending of Help to
Buy, the government scheme
covering new-build homes. which
lasts until 31st March 2021.
As the economy recovers transactions will rise gradually, surpassing the average of the
last five-years by 2022
HMRC annual completions in Great Britain
Source: Hamptons International & HMRC
has made some people decide to
relocate now rather than in a couple
of years’ time. It has also extended
the summer selling season; there
were more sales from July onwards
than during the same period of 2019.
We expect the recovery to be
sustained in the second half of the
year, meaning that completions will
hit just over one million in 2020. This
is 11% fewer than in 2019, but more
than in any year between 2008 and
2012.
This momentum should continue into
Q1 2020, as the end of the stamp
duty holiday approaches. But activity
may weaken as job losses peak and
the real economic impact of the
pandemic begins to be felt. Despite
this, we still expect there to be 1.1
million transactions in 2021, 8%
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Rental market update
The rental sector has recovered
more slowly from lockdown than
the sales market. It was not until
the end of July that the number of
let properties (homes with new
tenants) was back to the same level
as last year. The sales market
returned to its 2019 level of activity
a month earlier.
During lockdown, there were about
200,000 fewer rental moves than
normal which is not surprising. But
the market appears not to be
bouncing back – to the surprise of
many observers. We explore the
reasons why.
Since the easing of lockdown, the
number of landlord purchases has
remained lower than in the same
time last year, a trend that began in
Equally some tenants served notice
between April and June and moved
back home to reduce their outgoings.
Before the pandemic, rents were on an
upward trend, driven by rising real
incomes and a decrease in landlord
purchases weighing on the number of
homes available to rent, particularly in
the South.
Now, however, tenant numbers are
down on last year in eight of the nine
English regions, with few signs of any
pick-up. This is leading to a fall in rents,
particularly in the South and London.
The centre of London is the location
most affected because fewer
international students, tourists and
people on business trips are seeking
accommodation. Equally some urban
tenants are also leaving the cities in
search of more space.
Since late March, tenants have been
exposed to a similar set of forces as
those buying a home. Some tenants
have seen their incomes reduced,
although arrears levels remain a small
fraction of those who have taken a
mortgage holiday. And in similar fashion
to many buyers, tenants have
demonstrated an insatiable appetite for
outside space by moving to the suburbs.
While this points to the rental market
carefully creeping back to pre-pandemic
levels of activity, so far its recovery has
been more ‘U’ than ‘V’ shaped.
44% of landlords achieved an increase in rents when re-letting in
2020, marginally down from 47% in 2019
Source: Hamptons International
There is limited scope for rental growth
2016 after the imposition of the
stamp duty surcharge.
The number of buy-to-let investors
looking to buy is now moving
upwards. But the increase
represents only half of the rise in
owner-occupiers who are house
hunting. The reluctance of landlords
to invest is lowering the supply of
rental homes which may put a floor
under rents at some point in the
future.
For the moment, the number of
homes available to let is down in
every region, except London. But
tenant demand is slackening, as
tenants leave rented
accommodation to climb onto the
housing ladder: first-time buyers are
leading the sales market recovery.
Share of landlords achieved a higher rent when re-letting
50%
40%
30%
20%
10%
0
Zone
1
Lond
on
Sout
hern
Eng.
The
Mid
land
s
Nor
ther
n En
g.
Scot
land
Wal
es GB
2018
2019
2020
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Rental Forecasts
Great Britain 3.7% -1.0% -1.0% 2.5% 3.0%
London 4.4% -3.0% -2.0% 3.5% 4.0%
2019 2020 (F) 2021 (F) 2022 (F) 2023 (F)
Over the past six months there has been
unprecedented government intervention designed
to give private tenants more security of tenure.
Landlords have been able to take mortgage
repayment ‘holidays’ and there has been a ban on
evicting tenants in arrears.
These measures have undoubtedly kept tenants in
their homes. But what lies ahead for landlords and
tenants?
We expect a modest fall in rents this year, with a
similar decline in 2021. The pace of falls will level off
by the end of 2021 and we expect rents to rise by
2.5% in 2022, keeping up with house price growth.
Source: Hamptons International & HMRC
We expect rents to fall this year, with a modest decline in 2021 too
Annual rental growth forecasts on newly let properties
Rents to underperform house prices this year
What are our reasons for this view? Research
indicates that tenants’ incomes are more likely to
have fallen than those of homeowners. The
increase in first-time buyer numbers is also putting
downward pressure on demand for rental
accommodation. Younger people are living with
their parents for longer, rather than flying the nest
into a rental home. Around half of all people moving
into the private rented sector are new households.
Rental growth will decelerate more sharply in
London than anywhere else due to a combination
of factors unique to this location. The decline may
be most severe in prime central neighbourhoods.
But there should be a relatively rapid bounce back.
In the capital, record numbers of short-let
properties have been converted to long-term lets in
response to the fall in tourism and the lower
number of international students seeking
accommodation. There is also less demand for
corporate lets because fewer overseas executives
are spending time in London.
The outlook for the rental market depends on how fast the economy can recover and whether it can make up lost ground.
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Rental Forecasts (cont...)
In other regions, tenants will face rising job
insecurity; some will be earning less. But the stock of
rental properties is considerably lower than in
London and tenant demand almost exclusively
domestic. This lack of supply may serve to put a
floor under rents.
Rental growth will remain concentrated across the Midlands and the North, where purchases by landlords remain at historically low levels. During the last recession, the home ownership rate
tumbled, increasing the clientele of the private
rented sector. But this may not be the case in the
current recession. Growth in the private rental sector
has levelled off in the past few years because more
people in the 25-34 year age group are climbing
onto the housing ladder.
We argue that it is unlikely that the private rented
sector will become larger over the period to 2023.
We base this view on two factors. Lenders are
Rents to underperform house prices this year
gradually reintroducing higher loan-to-value
mortgage products which will limit demand. However
low interest rates will continue to mean returns from
buy to let will outstrip cash in a savings account,
supporting investment levels in the sector.
Any growth in build-to-rent, particularly outside of city
centres, is likely to be offset by a decrease in the
number of private landlords. Build-to-rent schemes
are backed by financial institutions.
18 / 19
September 2020
Authors
Aneisha Beveridge
Head of Research
David Fell
Senior Analyst
19 / 19
