UK residential forecast Q1 2020
The extent and duration of the health and economic crises caused by COVID-19 are still unknown, casting a shadow over the economy.
Experian’s house price forecasts for Cluttons are shown in the table below. Their current baseline economic scenario is a ‘delayed V-shape’ – a sharp drop in output for Q2 2020, five months of restrictions, then an upturn starting in Q4 2020. This feeds into house price and rent falls for all the areas covered for 2020, but these are recovered relatively quickly in 2021 as confidence returns.
Table 4 – Experian House Price Forecasts, April 2020
|UK house prices||Prime Central London house prices||Prime Central London rents|
There are clear downside risks to these figures, with the extent and duration of the health and economic crises caused by COVID-19 still unknown. In addition, it should be noted that the results of various house price indices, where they are able to produce data, may be much more volatile than usual due to exceptionally low transaction counts and potentially unrepresentative sales mixes, so forecasts are very likely to be subject to regular change as new data emerges.
Other risks to the housing market are also on the horizon. Brexit has been mostly absent from the news agenda, but comments from senior Government ministers suggest that there is no possibility of extending the transition period beyond the end of 2020. With time running out to agree trade deals and the EU focussed on Coronavirus recovery measures the chance of no-deal are surely increased. It is possible that the forecast rapid recoveries in both the UK economy and housing market in early 2021 could be set back with this further shock.
The idea of a land or property value tax, as part of a shift towards taxing wealth rather than income, has been gaining traction with some policymakers, but under normal conditions would be seen as politically difficult. It is likely that the public finances will need repairing once the pandemic is over, and the estimated £5-7 trillion of household property wealth could prove a tempting target for HM Treasury.
Any change in recurring property taxation could be offset by a removal or reduction in other costs like Council Tax or SDLT, which could boost the housing market. The other options for avoiding more downside are relatively limited. Interest rates are already at or close to a minimum. Help to Buy – designed to boost supply and demand of new homes following the last downturn – is still going despite high development output, but the scheduled scaling-back of the scheme could be delayed or cancelled to support the housebuilding industry.