FTSE 250 property consultant Savills has forecast a combination of stimulus measures contained in last week’s budget and the success of the UK’s Covid-19 vaccination program will see UK property prices surge by more than previously expected this year. The property group is set to publish updated 2021 market predictions today with the new figures forecasting average property price gains of 4% over the year.
For UK property investors, that upgrade represents a 4% capital gains bonus compared to Savills’ previous forecast of no growth over the year. The consultants and brokers now expect five successive years of growth to take the average cost of a home in the UK up to £279,644 by the end of 2025. That’s a total gain of 21.1% on average prices of £230,920 as of the end of last year.
The increased optimism was fuelled by Chancellor Rishi Sunak’s budget decision to extend the stamp duty holiday on properties worth up to £500,000 by an additional three months. The relief will then be tapered over the following three-month period, rather than directly withdrawn. The stamp duty holiday was introduced last year to help keep the property market’s wheels turning during the pandemic.
Another big factor is the budget announcement of government guarantees for mortgages with an LTV of up to 95% on homes worth up to £600,000. That means a deposit of just £50,000 will be required for a home worth half a million pounds.
Hopes of a rapid economic recovery have also been fuelled by the strong progress of the UK’s vaccination programme, which is ahead of most of the rest of the world. NHS England recently told regional health bosses to get ready for a doubling of the supply of vaccine jabs that will be available from the middle of March.
The government is now hopeful that the UK will succeed in vaccinating its entire adult population, excluding those who refuse the jab, by the end of July. That’s significantly ahead of the schedule currently expected by any other G7 nation.
The combination led Lucian Cook, Savills’ head of residential research, to announce an update to his company’s UK property prices forecast with:
“The outlook has improved since the beginning of the year. New sales agreed remain well above the pre-pandemic norm, with the same true of mortgage approvals. That points to a strong first half.”
The budget, he said, had
“significantly reduced the downside risks in the mid-year, while a recovering economy should support price growth towards the year-end. Across the country as a whole, five-year price growth of around 20 per cent looks sustainable without unduly depleting mortgage affordability.”
Regional trends in place pre-pandemic also look like holding with Savills predicting residential properties price growth will be strongest outside of London and the southeast over the next 5 years. Prices in and around the capital, which rose quickly for several years the previous decade, are believed to have already almost reached current affordability thresholds.
The northwest is, as was the case pre-pandemic, expected to lead property price rises over the next half decade, with cumulative gains of 28.8%, followed by Yorkshire and the Humber, tipped to rise by a total of 28.2%. London prices are expected to rise by less than half that rate over the same period, up 12.6% to an average of £547,868.
However, central London prime property is expected to do better with gains of 21.6% by the end of 2025. Prime property outside of the centre is forecast to gain 14.8%. That suggests that price rises for less expensive properties in and around London will lag.
Despite the economic impact of the pandemic last year, the stamp duty holiday has succeeded in keeping the property market buoyant. So much so that UK house prices gained an average of 7.3% last year. Savills had predicted a more conservative 4%. Gains over the next 5 years are expected to be front-weighted, with 5% over 2020, 4% in 2023, 3.5% in 2024 and 3% in 2025.
