The second and third quarters of 2021 will, in hindsight, be seen as the time to have bought UK residential property, according to the UK’s largest auctioneer.
The anticipated end to the stamp duty exemption on 31 March will be followed by a “calming of the market, although a cliff-edge drop is unlikely”, said Allsop in its residential auction review of 2020, which was published on 20 January.
“The Covid-19 vaccine will bring confidence, but not until Q4 this year. So without an extension of the stamp duty exemption, it points to buying opportunities in Q2 and Q3,” Gary Murphy, Allsop consultant and auctioneer, told EG.
Allsop’s four sales in H2 of 2020 all raised more than the equivalent sales in 2019 and raised a combined total of £208m, up 21% on the previous year.
This positive tone is expected to continue in its 18 February sale, which offers the opportunity to buy and complete before the stamp duty exemption ends. However, “Some of the gains in property prices seen last year, and potentially to be continued in the first quarter of 2021, will be partially lost to modest falls after March,” said the report.
Buying opportunities will increase as the full impact of the pandemic on the wider economy, so far delayed by supportive government policies, becomes more apparent.
“Mortgage and rent arrears are to be expected. Lenders will be asked to exercise forbearance, and landlords should expect requests for rent reductions or payment holidays,” the report said.
However, Allsop is optimistic that the final quarter of 2021 will see market activity improve and prices gradually rise again as confidence improves – provided that the Covid-19 vaccine does its job.
“With a new and safer normal in sight, 2022 could potentially see a significant uptick in property prices and, indeed, the global economy,” said Allsop’s report.
Allsop’s residential total for 2020 was £315.8m, down from £351.3m in 2019.
More predictions
An additional 2% stamp duty levy will be imposed on non-UK residents buying property in England and Wales and prime central London prices are likely to be affected.
Working from home is likely to remain popular even as the pandemic recedes, so it is anticipated that the swing from urban to rural living will continue. Demand for homes with gardens, work spaces and annexes will be high – particularly within commutable distance of major towns and cities.
The trend in favour of residential property outside London can also be seen in AST investment. Average yields for assured shorthold tenancies dropped to 7.97% outside London and increased within London last year, based on 131 lots sold at auction by Allsop.
Ground rents
Allsop sells almost half of all the London ground rents traded at auction, according to Essential Information Group. This means the “seismic shift” that this market is about to undergo following recommendations by the Law Commission is being watched closely by the firm and its clients.
Reforms will be introduced this year to give leaseholders the right to extend their leases by a maximum of 990 years at zero ground rent. A government online calculator will make it simpler to calculate the cost of extension. “Marriage value”, which is awarded to freeholders on the extension of leases with less than 80 years to run, will be abolished.
“Owners of ground rent portfolios, potential investors and their advisers will be anxious to know how values will be impacted,” said Murphy.
Until further details are published, ground rent investments will be hard to price. Indeed, Murphy said two private treaty portfolio sales on which Allsop was advising have stalled.
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