The global pandemic, which catapulted the UK into a two month long total lockdown in March, defined the remainder of 2020, not only in the UK but across the world. The USA elected a new president in November, ending the controversial era of Donald Trump and the UK finally reached a deal with the EU on Christmas Eve – but neither managed to displace Covid from the headlines for more than a few days.
As the year drew to an end, a second lockdown was announced in early November and London entered the highest category tier 4 restrictions on 20th December as the country faced the very real possibility an extended lockdown into January.
The UK housing market surprised many by staging a strong recovery as soon as it re-opened in July, despite continued interruptions to travel, hospitality and the entertainment industries and the virtual suspension of office-based working. The Nationwide House Price Index reported annual growth of 6.5% in November, the highest since January 2015 and the Halifax was even more robust at 7.6%.
In our area of central London however, the positive momentum of the summer ebbed away as autumn progressed and ended the year with no change in sale prices. Rental values fell dramatically in 2020, by 20% or more, weighed down by the burden of supply brought to the market after the collapse of the short term lettings market. Record numbers of tenants served notice to end tenancies in 2020 and many moved home during the pandemic to take advantage of the new rent levels, saving up to £10,000 p.a.
The sales market performed better in 2020. After 5 difficult years, following the Stamp Duty increase in 2014, signs of recovery emerged in 2019 and were strengthened by the convincing Conservative election victory in the December of that year. The summer 2020 market gave cause for further optimism as with a mini ‘bounceback’ of pent-up demand following the first lockdown. Prices were no longer a barrier to many buyers and more owners were minded to release capital from the central London market prompted, by the pandemic, to reassess their priorities.
Unfortunately, many of those would-be vendors were thwarted after all, by what would turn out to be the biggest single influence on the Central London sales market in 2020, bigger even than Covid. That was a requirement for apartment blocks to have compliant Fire Safety EWS1 forms – a certification system introduced to protect against fire risk in the wake of the Grenfell Tower tragedy.
Although EWS stands for external wall system, the assessment covers a much wider brief and created a very long waiting list for a qualified assessor, effectively blighting the sale prospects of thousands of apartments and presenting many owners with potentially life-changing bills for repairs and remediation, as we reported in our half year report. Without a compliant EWS1 form, lenders are not prepared to accept a property for mortgage purposes and a cash buyer would look for a substantial discount to reflect the uncertainty around repairs and liquidity.
Late in November, the government narrowed the scope of EWS1 to buildings which have cladding – but it does not solve the problem. Equally, the speculation that there will be special loans for leaseholders to cover the cost of works is no solution for a leaseholder who is in no way responsible for the building defects or who wishes to sell.
The rental market, already flooded by short term stock sidelined by business or leisure travellers, was presented with another source of new stock, as owners with non-compliant EWS1 forms offered their unsaleable apartments for rental, adding to the oversupply and suppressing rents. Neither of these trends are long term structural issues for the rental market. It is widely expected that business and leisure travel will resume within a year and the backlog of EWS1 assessments will clear within two to three years. As soon as office workers return to their desks, demand for homes in the city will recover.
The government was keen in the late summer to encourage people back into London offices and, although that policy was reined in as autumn progressed, there were signals at the year end, that the romantic view of working from home was beginning to pale and many urbanites were craving a return to the bustle and buzz of life in a global city. The announcement of an effective vaccine gave a boost to the national (global) mood although it was evident that the roll out would take many months.
We expect rental growth to become positive in spring or early summer of 2021. Sales prices on the other hand, will remain flat in 2021 as the true strain on the UK economy from Covid on top of our new trading arrangements with out European partners takes its toll. The removal of a ‘no deal’ Brexit is good news for London which combined with Covid vaccinations gives optimism for a bounce back in London’s housing market for 2021.