As we enter a new decade, many question marks still remain over the direction Prime Minister Boris Johnson and his Conservative-led majority government will take in leading the country through Brexit. In Parliament’s opening week of 2020, some notable progress was made––the EU Withdrawal Bill was passed by the House of Commons.
Regardless of one’s political persuasion or opinion on Brexit, the fact that some kind of action has been taken is welcoming news for those of us who work in the finance and property sectors. Of course, the big challenge comes on 31 January when the UK is actually set to leave the EU. It remains to be seen just how this process will be managed.
Leaving Brexit to one side, it is worth considering what the coming 12 months could mean for the UK property market. In my opinion, 2020 symbolises a critical turning point for real estate investment. I explain why below.
Political stability encourages investor confidence
In 2019, the real estate market suffered from growth stagnation of sorts––house prices were rising, albeit at a modest rate, while in London there were fears prospective buyers were simply not pursuing desirable opportunities. In the year leading up to November 2019, the government estimates house prices rose by 2.2%.
Part of the reason why house price growth was minimal had to do with the political make-up of the government at the time. With no clear majority in power, Westminster was stuck in a political deadlock. With a majority government now in power, property commentators are holding an optimistic outlook for 2020.
For example, a recent analysis from Savills suggests that prime central London property prices could grow by as much as 3% in 2020. After three years of a frustrated and dampened real estate landscape, with as much as £2 billion taken off the price of London property, growth of that kind would lead to more stock, liquidity and opportunity in the capital―excellent news for buyers and sellers alike. Looking at the country and market more generally, Savills also estimates that the average house price could increase by 15.3% over the next five years.
Pound fluctuations could encourage an influx of foreign investment
The value of the pound has been in a constant state of flux since the EU referendum first took place in June 2016. As a result, there is a general expectation that many prime and super-prime buyers will attempt to purchase a property while the pound is still trading at a lower rate. As always for non-UK residents purchasing property with a foreign currency, the value of the pound will be a primary consideration, and many will find getting in early―whilst the weaker pound offers a favourable exchange rate―is most efficacious.
At Butterfield Mortgages Limited (BML), we regularly arrange prime property mortgages for international investors completing on an acquisition of a UK property. What’s more, a BML survey of over 750 UK-based property investors revealed that 57% believe foreign buyers investing in the country’s real estate are vital to the economy, though there is also general support to restrict their buying power.
This topic was mentioned during the 2019 general election campaign. At the time, Prime Minister Boris Johnson touted a new 3% stamp duty surcharge on foreign nationals purchasing property. It remains to be seen how and when such a policy will be implemented. However, it is likely we should at the very least see mention of stamp duty reform in the 2020 Budget scheduled for 11 March.
A cause for optimism
2020 looks set to be a strong year for the property sector, with renewed healthy growth forecasts already creating a buoyant narrative. Of course, there is still much uncertainty about what the coming months will bring. Yet if current trends are any indication of what the future could hold, 2020 could be the year that investors and homebuyers are best positioned to access new opportunities.
Alpa Bhakta, CEO of Butterfield Mortgages Limited
Alpa Bhakta is the CEO of Butterfield Mortgages Limited. Part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited. Butterfield Mortgages Limited is a London-based prime property mortgage provider with a particular focus on the needs of UK and international HNWIs.