Property webinar: State of the property investment market

Read highlights from the discussion:

• Could you give us a brief overview of the main factors that have shaped the economy in 2021?

  There are a number of different factors. The biggest factor through this year has been COVID-19. There are two COVID-related issues. The first is fiscal policy which supported the economy through 2020. The furlough scheme was extended into this year and arguably prevented a major collapse of the economy and a weakening of the economy. As a result, unemployment has been contained to a peak of just over five per cent. It’s possible that we will now see a rise in joblessness, but had the furlough not been in place we may have seen a weaker economy.

  The vaccination programme has also helped growth. We’ve had a relatively efficient roll-out of the COVID vaccine in the UK, which has enabled the government to reopen various sectors of the economy. We estimate we’re going to get growth of 6.5% this year, although more recently, we’re seeing a slow-down of that momentum and we’ve seen supply issues crimp growth. Generally speaking, the state of the UK economy is much healthier than most people might expect.

• How has the property market fared?

  The property market has outperformed most people’s expectations over the last 18 months.

  One of the biggest things that has supported the housing market is the low interest rates that we’ve seen. Interest rates on mortgages have come down quite considerably over the last seven to eight months.

  Beyond that, we’ve seen an attitude change toward property. A lot of us have re-evaluated what we want from our homes and that’s encouraged homeowners to make bigger moves to larger properties or new locations.

  Activity has been supported by wealthier households that have been able to build on existing equity and savings.

• How are the low interest rates likely to affect property investors?

  The low interest rate environment in a general sense is likely to be maintained. Most people choose fixed-rate mortgages and what’s relevant is what the interest rates are in the US as they tend to affect longer term mortgage rates internationally. We are looking at normalisation of interest rates in the States but very gradually.

  Low interest rates on savings tends to encourage investors to look at other options in the market. Investors are looking at different ways to diversify their portfolio.

• What trends have you seen in how investors see return of investment through yields/capital growth?

  The composition of that return varies quite considerably over the regions. London landlords have made the biggest total return but 80% of this return in London comes from capital growth.

  When you look at landlords who have invested further north about 57% of this return comes from rental income rather than capital growth.

  Landlords who own a buy-to-let property are now unable to offset mortgage interest costs in their tax bill. Because of that we’ve seen investors prioritise yield.

  While northern areas tend to give you the best returns on an average basis, some of the areas in the south are catching up.

• What are you seeing in terms of the demographic of investors?

  On an average basis, the number of international buyers has fallen over the past two years. According to Hamptons’ data, pre-pandemic, in prime central London, international buyers would be buying 50% of homes. This has dropped to 27% during the pandemic.

  We are expecting numbers to recover in 2022 as global travel picks up.

• Will London retain its appeal going forward?

  London is still a very attractive place to do business and the UK has relative political stability. During the early months of the pandemic, there were fears that cities would become wastelands but now the economy has opened many people have returned to the capital.

  What’s the current view on whether interest rates will rise?

• Is there a sense of when interest rates will rise?

  Firstly, as we move away from the pandemic, interest rates may be pushed up to prevent the economy getting too much stimulus.

  If inflation is a huge issue and above the BoE’s 2% target over the medium-term, increases in interest rate may keep inflation contained.

  Our view is that inflation may rise for six to nine months before falling. We may begin to see interest rates rise in 2022 by a very small amount.

• What are we expecting to see from the property market going forward?

  We expect things to settle down as we head towards the end of year; the stamp duty holiday has come to an end. At the moment, the market is looking resilient and demand is above where it was in 2019.

  The latest data from the ONS showed house prices may have grown by 8% in July and this growth may fall to 4.5% at the end of this year. Next year, there may be demand from those who couldn’t move in 2021 as many people have re-evaluated what they want from their homes.