forecasts

Strutt & Parker revises 2020 forecasts for UK after Q3 ‘mini-boom’ in transactions

Q4 2020

Property consultancy Strutt & Parker has revised its UK house price forecast for 2020 after a significant boost in transactions was seen in Q3; estimating a best case scenario of 5% growth in 2020 for the whole UK market, with a downside risk of 0% growth. The firm was previously predicting that the UK would see a best case scenario of -1% growth in the year to Q4 2020.

Vanessa Hale

Director, Research

+44 20 7318 4675

According to the Nationwide House Price Index, UK property prices grew by 3.5% in the year to Q3 2020; the highest YoY growth since the year to Q1 2017.

Guy Robinson, Head of Residential Agency at Strutt & Parker, said: “There is no doubt that 2020 has been a very challenging year so far but as we move into lockdown part 2, it is crucial to note that the Government has decided to keep the property market open for business throughout November, in England and in Scotland. Over the summer the industry has witnessed what can only be described as a ‘mini-boom’, with unexpectedly high activity levels across the UK, driven by pent-up demand after the property market was shut down for nearly three months. Weeks of lockdown caused many people to re-evaluate their living spaces and consider a lifestyle change, while the introduction of the Stamp Duty holiday has also been having a significant positive impact.”

“Usually, the market naturally starts to slow down at this time of year but after the busiest summer that we can remember, there are a huge number of transactions in the pipeline for the coming weeks – so it is important that the market is kept moving from now until the spring when the Stamp Duty holiday is due to come to an end.”

Strutt & Parker has retained its forecast for the Prime Central London market, estimating a best case of 0% growth in 2020 and a worst case outcome of -5%. PCL sales index data for Q3 2020 reported negative price growth of -0.2%, the second consecutive quarter of small negative QoQ growth, effectively reversing the growth experienced in Q1 2020 (0.9%). This marks a return to the 17 consecutive quarters of falling prices in the PCL market. Total sales transactions in PCL fell by 18% compared to Q3 2019 but increased by 98% compared to the previous quarter. By historic standards, all transaction levels remain low. Total PCL transactions in Q3 2020 were only 48% of the previous peak in in Q4 2013.

Louis Harding, Head of London Agency at Strutt & Parker, comments: “As we head into the winter, we can look back at the summer market in PCL which was better than we could have hoped for. While the Stamp Duty holiday has been having minimal direct impact in central London due to the property values involved – I would argue it’s having a significant impact on general sentiment. The buzz further down the chain is indirectly and perhaps subconsciously having an effect on high-end buyers who have been very motivated to get on with things. Current buyer numbers are up over 20% year on year, although our stock levels are not matching that.”

“Travel restrictions into the UK this year definitely impacted some of our offices more than others who are more dependent on overseas buyers. Thankfully domestic buyers have been strongly present in the market, so this only accounts for a slight reduction in sales overall.”

In the PCL lettings market, transactions for Q3 2020 were equated to 62% of the levels seen in the same period last year. However, growth was extremely strong at 200% when compared to the previous quarter; reflecting a considerable market pick up. Strutt & Parker expects rents in the central case will fall by 2% and in the worst case by 10% in the year to Q4 2020. Cumulatively over the next five years, the firm expects to see a bounce back, but the scale and speed of this could potentially be more dependent upon longer term behavioural shifts resulting from the current situation with COVID-19.

Vanessa Hale, Head of Residential Research and Insights at Strutt & Parker, concludes: “Given the constantly changing nature of the COVID-19 crisis, the outlook remains varied and hard to predict. The restrictions as a result of the pandemic were felt over the historically busiest three-to-four months of the year, having a huge impact on transaction levels in lettings and sales. Although Q3 transaction levels have been buoyant and show signs that the market can recover those losses by the end of the year, the wider economic outlook is gloomy. Ultimately, economic and market indicators underpin our house price forecasts.”

“Price changes at the UK level were expected to be more severe, with the economic slowdown having the potential to impact some areas more than others. However, given the strong performance of the UK as a whole for three consecutive quarters, the forecast is revised to 0% to 5% for 2020.”