Strutt & Parker forecasts best-case growth of 5% for UK and Prime Central London in 2021

Q1 2021

Property consultancy Strutt & Parker today launches its UK house price forecast for 2021 estimating a best-case scenario of 5% growth in 2021 for both the whole UK market and Prime Central London, with a downside risk of 0% growth. The firm has also updated its five-year forecast, estimating price growth in the UK of between 15% and 25% and in Prime Central London 15% to 35%.

Vanessa Hale

Director, Research

+44 20 7318 4675

According to the Nationwide House Price Index, UK property prices grew by 6.4% in the year to Q4 2020; the highest Year-on-Year (YoY) growth since the year to Q4 2014. YoY growth over the year to Q4 2020 shows that, on a regional basis, the best performers were the East Midlands (8.6%), outer South East (8.0%) and the North West (8.0%).Scotland saw the lowest positive growth at 3.2% and no regions saw negative growth.London growth was at 6.2%, up from 4.4% the previous quarter. Quarter-on-quarter growth in the UK was 2.9% in Q4 2020, up from 1.7% in Q3 2020.

Guy Robinson, Head of Residential Agency at Strutt & Parker, said:

“Looking back at 2020, it is clear to see the challenges the property market and the wider economy faced. The first set of restrictions, where the market was closed as a result of the pandemic, were felt over what is historically the busiest three-to-four months of the year, having a huge impact on transaction levels in both lettings and sales. However, after the market reopened, it bounced back with unexpectedly high activity levels across the UK, driven by pent-up demand and people revaluating their living situations.

“Q4 did see a return to Government restrictions to fight the spread of the pandemic but, this time the property market was able to stay open for business and strong levels of activity were maintained despite November’s four-week, circuit-breaker. While there is still a lot of uncertainty as to when life might return to normal amid another national lockdown, continued good performance at the UK level is anticipated in 2021 and there is expected to be inflated activity in Q1 as people rush to take advantage of the stamp duty holiday. However, should this not be extended past March, activity is expected to drop in Q2 but, this is not likely to have a lasting material impact upon demand across the market as a whole.”

Strutt & Parker has revised up its forecast for the Prime Central London market, estimating a best case of 5% growth in 2021 and a worst case outcome of 0%, up from 0% and -5% price growth for 2020 respectively. Total sales transactions in Prime Central London fell by 5% compared to Q4 2019 but, increased by 26% compared to the previous quarter. By historic standards, all transaction levels remain low. Total Prime Central London transactions in Q4 2020 were only 60% of the previous peak in Q4 2013.

Louis Harding, Head of London Agency at Strutt & Parker, comments:

“Prime Central London sales prices were stagnant in 2020, with two quarters of slight reductions in prices and two quarters of slight growth, finishing the year to Q4 2020 with a marginal decline. Ongoing travel restrictions limited the usual positive impact of international buyers in many of our markets, though the domestic market remained robust with sellers, who did not have to move, being able to wait and see how the economic situation plays out.

“Currently, the Prime Central London market has more listings year-on-year, though we expect new supply in Q1 to be down due to ongoing restrictions, with activity in market appraisals limited. But what is selling is good quality stock, positively contributing to prices. On the other hand, sellers are holding on to price expectations, with little appetite to move on price in the absence of forced sellers.

“Looking at 2021, the 2% stamp duty surcharge for non-residents which will be introduced in April may temporarily temper demand in this market, though I expect this to be outweighed by pent-up demand and Prime Central London representing good value with prices still around 20% down on their 2014 peak. Over 2021, we are predicting small price growth and higher transaction volumes than in 2020.”

In the Prime Central London lettings market, YoY growth was -6.7%, which is better than the worst-case scenario of -10% previously predicted for 2020. The outlook for Prime Central London lettings remains negative due to low market activity and rising stock levels, making it a competitive market where price rises are unlikely in the near term.

Vanessa Hale, Head of Residential Research and Insights at Strutt & Parker:

“Economic and market indicators underpin our house price forecasts and, while we are cautiously positive for 2021, conflicting forces are still at play in the economy and our outlook for the year is still affected by a number of uncertainties. While progress to fight the pandemic is being made, the success of the vaccine rollout and what happens to unemployment levels at the end of the furlough scheme will be major drivers in how much and how quickly the economy recovers. Let’s also not forget though that despite the economy witnessing its largest recession the housing market proved resilient over 2020 and ultimately UK wide house price growth was stronger than our best-case scenario.

“However, 2021 is likely to be a year of three parts. It is expected that the first quarter, buoyed by the stamp duty holiday in lower priced segments of the market, will see some growth. The middle of the year is expected to be muted and is highly dependent upon how quickly vaccine roll out and economic growth perform. Growth in the final quarter is expected. Our expectations are that both UK and Prime Central London house prices will see some growth in 2021, of up to 5%. This will vary considerably across market segments, with the most discretionary parts of the Prime Central London market, which are also those most reliant on international purchasers, likely to be more volatile.”

Download the Winter 2020/2021 Quarterly Report