Covid-19 and the future of residential property in the UK

Desire for proximity to nature is creating a surge in buyers seeking to escape the city. Laura Conduit, a specialist residential property solicitor at Farrer & Co., notes a surge in rural interest, saying: “We’ve seen an explosion in the country house market.”

But an increased desire for country living isn’t necessarily a ‘new’ trend – nor an end to the desirability of London prime. Back in 2018, Investec’s England’s Prime Property Hotspots pointed to the migration to the countryside as a growing trend amongst high net worth buyers, thanks to interest stoked by improved transport links, civic investments and emerging business clusters.

Paddy Dring, Knight Frank’s Global Head of Prime Sales, agrees. “People have realised they don’t need to be in the city all the time,” he says. “So what we’re seeing is an accelerated shift that was already happening anyway.”

Experts also recognise that the health of the rural market represents, in part, a booming second home market. “As you move to the top end of the market, clients are investing additionally in the country and keeping both properties,” says Tom Bill, Head of UK Residential Research at Knight Frank.

Additionally, experts point out the need to avoid a short-term approach.

"I would urge caution. In the longer term the boom in the countryside market will have less of a marked impact than we might expect when looking at today's data."
- Tom Bill, Knight Frank

Demand for London’s prime homes has recovered since the first national lockdown, but more slowly than regions outside of the capital. The Royal Institution of Chartered Surveyors found that, in September, house price growth was continuing to accelerate in all regions, but noted that “the rate of house price inflation appears to be more modest in London.”

Experts attribute London’s slower recovery to the reduction in overseas purchasers. Jeremy McGivern, Founder of Mercury Homesearch, comments: “There are two very distinct markets, the domestic and the international. You can walk down King’s Road and it's very busy, but you cross into Belgravia and it's very quiet, because international buyers haven’t been able to come to London due to travel restrictions.”

However, Paddy Dring of Knight Frank highlights that restrictions haven’t deterred all international buyers. “If an overseas buyer knows that purchasing property in London is in their plan for the future, for example, because a child is due to attend school or university in the city, they’re more willing to buy remotely rather than waiting to view in person.”

Indeed, despite the drop in overseas buyers, some areas of prime London real estate have remained buoyant. Prime outer-London locations  – especially the leafy London ‘villages’ – are seeing high demand from purchasers, investors, renters and home-sharers. SpareRoom says it has seen demand for gardens, patios and balconies almost double over the summer. Experts note this as a key consideration for buy-to-let landlords and those looking to extend their portfolio.

“Desire to find family homes with gardens and an area to work from in village-y neighbourhoods are off-the-charts,” says Andrew Weir, Chief Executive of London Central Portfolio.

It’s also important to consider the impact of a possible economic downturn expected in 2021. Already there are signs that the economic bounce-back witnessed after lockdown is slowing. According to the ONS, monthly GDP grew by 6.6% in July as lockdown measures continued to ease, following growth of 8.7% in June. However, growth was slower than expected in August, with GDP increasing 2.1% from July, compared to its 4.6% forecast.

Brexit has played a part in fuelling the state of the market today and it will also shape the trajectory of the coming months. Analysis from the London School of Economics shows that, if measured in terms of the impact on the present value of UK GDP, the effect of a no-deal Brexit could be two to three times greater than that of the COVID-19 pandemic.

Meanwhile, albeit further afield, the results of November’s US presidential election, although likely to be more of a short-term effect, may impact buyers holding US dollars and looking for UK property.

So what conclusions can we draw as to where the market goes from here? While it is impossible to make any concrete predictions  – we remain, after all, in a period of incredible upheaval and uncertainty  – our experts point to some of the key considerations for buyers, sellers and investors to be aware of.

Thanks to pent-up demand and a range of ‘mini-booms’ in leafy London villages, London prime property remains buoyant. Furthermore, experts express confidence in the resilience of the capital’s prime market. “London property still retains its enviable status as a safe haven for tangible alternative investment,” says Andrew Weir of London Central Portfolio. “The attraction of the GMT time zone, the global business language, rule of law, world-class education institutions and a liberal culture continues to appeal to a global audience of high net worth individuals.” General consensus, though, is that we should expect to see a new balance of rural and urban living for some time to come.

For long-term value, buyers and investors may want to consider what makes a future-proof property, in order to avoid taking a short-term approach. This could mean ensuring a residence offers green space and a home office for flexible workers, while also retaining proximity to transport links to maintain easy access to the city.