Will property prices rise in the UK after Brexit?

Despite recession: record highs in house prices and sales in Great Britain

In Great Britain, property prices rose more sharply than they have been in a long time, despite a historic economic downturn and Brexit - what is behind this and are the forecasts for 2021 just as rosy?

One could have feared that Brexit, the effects of the COVID-19 pandemic or other factors would have a negative impact on property prices in Great Britain: After all, the British government last November saw the gross domestic product fall by around 11 percent for 2020 as a whole largest economic downturn forecast for more than 300 years. But: "The lockdown and other restrictive measures generally have no negative effects on real estate prices." These are the words used by the expert Lukas Endl, Managing Director at LINUS Digital Finance, from the information platform Capital.

Offer prices are increasing from month to month - by more than 6 percent for 2020 as a whole

Instead, the asking and average selling prices of British real estate reached a new high every month in 2020. According to the highly regarded Rightmove portal, the average property price in November was 229,721 pounds - this value could not be reached in the entire past decade. The month before, a sales high since 2016 was recorded: there were around 105,600 property sales in the UK in October 2020, according to Nationwide building society. As the Business Times reports, this is an increase of 70 percent compared to the same month last year.

Another record was set in August, with house prices in the UK increasing by two percent compared to the previous month - this is, as Nationwide explains, the highest monthly price increase since 2004.

Nationwide estimates put UK house prices up at least 6.5 percent for 2020 as a whole, despite the recession and Brexit.

Two important factors for market development in 2020: demand congestion and stamp duty

As Capital reports, Endl considers two major factors to be decisive for the developments in 2020: On the one hand, the British have been longing for more space and green space since the beginning of the pandemic - the unusually high interest in buying property in peripheral locations led to a backlog of demand at the beginning of the year was only dissolved with successful sales in the further course of 2020. The backlog of demand naturally leads to price increases in those peripheral locations, according to Endl.

On the other hand, as part of the Corona economic stimulus package, the so-called stamp tax that must be paid on property purchases was restricted in Great Britain for the period from mid-July 2020 to the end of March 2021: For a transaction value of up to 500,000 pounds, buyers are exempt from the tax during this period - usually the Value at £ 125,000. This special regulation is currently apparently particularly encouraging to interested parties to buy.

A four percent price increase or a 5 percent drop? - Forecasts for 2021 are still uncertain

Will the UK's real estate rally continue in 2021? The experts explain that the first quarter could bring new records before the usual stamp tax applies again from April 2021 on from a sale of 125,000 pounds. From the second quarter of 2021, Endl Capital expects the rally to level off, but investors can be sure that prices will fall the further away a property is from London. For private investors, an investment in logistics real estate could make sense: These would be strengthened in the short term by the pandemic and Brexit and would benefit in the long term from the megatrend towards e-commerce.

For the full year 2021, however, the forecasts still vary greatly: Rightmove apparently expects a price increase of four percent, since at the end of 2020 53 percent more prospective buyers had concluded brokerage contracts than in the same period of the previous year. According to Forbes, Helifax, on the other hand, is expecting a price slump of two to five percent, but according to its own information, the uncertainty of this forecast is significantly higher than in recent years. According to Capital magazine, the British Office for Budget Responsibility (OBR) speaks of a drop in prices of as much as 17 percent in the worst-case scenario.

Image sources: Deutsche Asset Management

by the editorial team investing in real estate