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Strutt & Parker retains 2020 forecasts despite significant drop in Q2 transactions

Q3 2020

Leading property consultancy Strutt & Parker is retaining its UK house price forecast for 2020. Alongside its economic forecasters Volterra, the firm is estimating a best case scenario of -1% and a downside risk of -7% in the year to Q4 2020 for the UK, with potentially larger short-term impacts.

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Vanessa Hale

Director, Research

+44 20 7318 4675

The restrictions on the property market enforced due to the pandemic were felt over the historically busiest three to four months of the year, from March to June. This has had a huge impact on transaction levels.

Guy Robinson, Head of Residential Agency at Strutt & Parker: “Since the market reopened on 13 May, we have seen activity levels pick up quickly and they are now surpassing the levels we saw in the summer of 2019. There have been some hot pockets with considerable activity, such as the Cotswolds, the South West and coastal towns, where the pandemic seems to have accelerated demand from discretionary buyers who are keen for a new lifestyle in the countryside. In these areas we are even seeing sealed bids and offers agreed in excess of the asking price. However, in other less buoyant markets we are seeing small price corrections, as sellers seek to capitalise on demand that may not be there tomorrow, due to fears of a second wave or Brexit impacts.”

Vanessa Hale, Director in Research at Strutt & Parker: “Whilst the property market has reopened there is still some considerable market uncertainty given the wider economic outlook. We estimate that at least half of prospective buyers and sellers in prime markets are discretionary, meaning they don’t have to move and can afford to wait and see what happens to the market next year. This ‘wait and see’ approach has been further strengthened by the government intervention schemes such as mortgage holidays and furlough, which have made it financially viable for people to sit on their hands. Overall, half of Q2 transactions were lost across the UK. If this is also the case in Q3 and Q4, this would equate to a worst-case drop in sales volumes by 40-50% over the course of 2020.”

In the country house market above £2 million, COVID-19 halted all transaction levels during Q2. When looking at the figures for H1, the largest numbers of £2m plus homes that sold continued to be in the South East, however post lock down viewing activity has increased dramatically in this price band across the UK.

Kate Eales, Head of Regional Agency at Strutt & Parker: “As anticipated, transaction volumes were dramatically reduced for most of the second quarter. We knew from taking part in our webinar series that individuals were re-evaluating their homes during lock down and we have seen this translate into intense market activity since the market reopened. The addition of the various freezes on Stamp Duty Land Tax (England), Land Building Transaction Tax (Scotland) and Land Transaction Tax (Wales) have been an extra energy boost for the market and in many areas of the UK we are seeing record numbers of applicants and viewings.”

Prime Central London

Total transaction levels in PCL remain historically low, sales in the last quarter fell by -56% compared to Q2 2019 and by -54% compared to the previous quarter. The six-month holiday on Stamp Duty Land Tax will likely have a positive impact on transactions throughout the country, but to a lesser extent in PCL.

Strutt & Parker is estimating a best case of 0% growth in 2020 and a worst case outcome of -5% in PCL. However, the short-term impact in this part of the market could be much gloomier with drops year on year of up to 10%; although these price falls are likely to only be felt in very low trade environments, specific sub markets, or with properties that have no other option but to transact at the current time.

Louis Harding, Head of London Agency at Strutt & Parker, comments: “The return to activity since May has been as good as we could have hoped for in London. We’ve seen a flurry of activity as lock down is lifted and transactions are now back up to similar levels as they were this time last year. Our pipeline was impacted by our inability to conduct appointments from March to May, but we are already seeing significant improvements. The ultra-rich seem to be interested in London again with the UHNW market seeing interest for properties above £15 million and up to £40 million. It remains to be seen how much a change in working patterns will impact the periphery of PCL over the next year or two; we may see a rise in lifestyle changes with more people leaving London for the countryside and opting to work remotely or only commute into the city once or twice a week. However, it is my belief that the desire to live in central London will persist beyond this current trend for all the reasons that make London such an amazing city.”

In the PCL lettings market, 2019 saw three consecutive quarters of positive growth (albeit marginal, at 0.1%, 0.3% and 0.1% respectively), and this growth was maintained into Q1 2020 (0.3%). At the start of the year the market seemed to be stabilising but the pandemic has now caused stock increases due to the collapse of the short-term let market in the capital, which is unlikely to recover fully this year.

Lettings transaction levels are also significantly down. In Q2 2020, rental transactions equated to just 32% of Q2 2019 transaction levels. This indicates that there is pent up demand and now that people are able to move into rental properties again, it is expected that transactions will start to recover, albeit at a slow rate. Renewals are happening at lower rates and some tenants may need to negotiate rent reductions due to job uncertainty. Strutt & Parker expects that rents will fall by between 2% -10% in the year to Q4 2020.


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