With the end of the Stamp Duty holiday in March, mortgage
payment holidays coming to an end, unemployment set to rise after furlough and
ongoing on/off coronavirus restrictions ..what will this do to the Retford
property market and the value of your Retford home?
Retford
House Prices 2021:
What will happen to the value of your Retford home next
year?
In the late spring of 2020, many people were
forecasting impending doom on the British property market. Drops of 10% were
considered optimistic as we all held our breath after lockdown was relaxed.
Yet, the property market didn’t listen to the forecasters. UK property values today
are 2.5% higher than they were a year ago, and more locally, Retford detached
house prices are 13% higher than a year ago.
So,
what exactly is going to happen to the Retford property market in 2021?
Well, with the end of furlough and 1.7m people still on
the furlough scheme at the start of November, a number of economists are saying
that unfortunately many of those furloughed will become unemployed.
Unemployment currently stands at 4.5% in Q3 2020 (compared to 3.8% in Q3 2019).
The Government’s independent Office for Budget Responsibility believes the
unemployment rate will peak at 9.7% in early 2021, and then return to
pre-coronavirus levels in 2022. In the past recessions of the early 1980’s,
early 1990’s and Credit Crunch of 2009, when unemployment went up, the property
market went down.
Yet, in this recession, the link between unemployment and
property values may not be so direct.
So
why is the link between unemployment and house prices potentially broken? It
comes down to interest rates.
The reason Retford detached house prices have gone up by 345% since 1995 isn’t because the labour market has got so much sturdier, nor that the economy has outperformed every G8 country, or that the UK has had less boom and bust economic cycles than the previous decades. Instead, it’s because of the fundamental and underlying decline in the Bank of England (BoE) interest rates.
High BoE interest rates equal high mortgage payments
which hold everything back regarding the property market. In the 1980’s, the
average BoE interest rate was just over 11%, making mortgage payments very
expensive and keeping property prices dampened. In the 1990’s, the average BoE
interest rate was a little over 6%, in the 2000’s just over 4%. However, in the
2010’s, it had been a really low 0.5%. Now with interest rates down to 0.1%
because of coronavirus and the BoE threatening negative interest rates, there
appears little threat of an eruption in mortgage repayment costs.
With mortgage payments at an all-time low of just under
30% of homeowners' disposable income (compared to 48% in 2007), those
middle-aged people lucky enough to still be in a job (who are mainly made up of
workers who are spending a lot more time working from home), they could be more
inclined to dedicate more of their monthly income to mortgage payments than
they did pre-coronavirus for a bigger garden or a move out of the big cities?
So,
if unemployment isn’t going to make a huge difference to the Retford property
market, what is?
Brexit will have hardly any effect on the property market.
The Stamp Duty holiday ends at the end of March 2021 and
that certainly will reduce the number of Retford people moving (as many moved
their plans forward to beat the deadline) meaning there will be less Retford
people moving in 2021, yet that will curtail the supply of property for sale
and hence keep Retford property prices higher.
Next, the Help to Buy scheme, (started in 2013 and where
the Government underwrites part of the mortgage for the first time buyer,
meaning they can obtain a 95% mortgage) ends in April next year, but the government
have clearly indicated an intention to create ‘Help to Buy - Part 2’.
The bottom line is in the early 1980’s and 1990’s
recessions, when interest rates were over 15%, obviously homeowners couldn’t
afford to keep up the mortgage payments when made redundant or on reduced
wages, so many handed in their keys to the banks and homes got repossessed,
thus exacerbating the issue with falling property values.
However, with interest rates so low, this will not be the
case. I envisage that UK property prices will be between 4% to 5% higher by
December and Retford values just behind that at 2% to 3% higher, before
levelling out in 2021 (although we might see a modest dip in certain sectors
and types of Retford homes depending on location and condition).
I also suspect those Retford first time buyers, eager
(and able) to break free from the rental
market will want to take up the anticipated ‘Help to Buy - Part 2’ scheme,
particularly if the BoE base rate stays low. The other winners in 2021 will be
low mortgage/equity rich households upsizing to the countryside or leafy
suburbs to test out their boss’s promise of ‘flexible-working’.
Yet the losers will be the 18 to 29 year old renters …
most likely to be made redundant and least likely to buy a home.
My advice to the Government for this cohort is to not ignore
them once the country is out of this coronavirus situation.
As the Generation X and Millennials get older and take
over as the largest demographic they need to be kept happy and rewarded with an
easier route to home ownership. I would go further and suggest that the
Conservatives need to really grasp the nettle on this and make sure
homeownership is a priority. The other political parties will ignore it as
usual.
I mean, we have £400bn to pay back because of coronavirus
… it has to be repaid and it has to come from somewhere. Those denied real
access to buying their own home in the last 10 years, because of massive house
price gains over the last 25 years, could vent their anger via the ballot box -
if not at the 2024 General Election, maybe in 2029, when they realise that
housing policies are not working for them.
Maybe we should all look to the grocer’s daughter from
Lincolnshire who in 1979 set out a bold vision of home ownership for everybody.
I suggest American style long term mortgages might be a starting point.
Let me know your thoughts.
Thanks for reading.
I'm here to help
sellers, buyers, landlords, and tenants.
Call me or drop me a
message if you think I might be able to help you.
The Good
Estate Agent – North Nottinghamshire
Tel: 01777 237310 or 07981 744003
https://www.facebook.com/thegoodestateagentnorthnottinghamshire
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