2020 was a tumultuous, yet successful year for the UK property market. According to Zoopla, house prices rose by 7.6% in the year to November, valuing the average house at just under £240,000. Landlords also had a good year, with Office for National Statistics’ (ONS) data showing the average rental price for a new tenancy was up by 2.9% to £974 per calendar month (pcm). This despite a fall in prices in London of 4.4%.
Its certainly not been an easy or uniform 12 months. COVID-19, an explosion in remote working, a sharp decline in retail commercial property and a surge in demand for warehousing and logistics centres has provoked unprecedented changes in the market. As one of the UK’s leading providers of property insurance, Coversure has felt the full force of these of developments. Over the past year demand for commercial property, home and landlord insurance have all risen sharply, while markets for traditionally strong lines such as office and shop insurance have softened.
So, what does 2021 hold for the UK property market? Our team has identified the following 5 key issues that could make or break the market:
1. COVID – while COVID is often appended with 19 to denote its year of discovery, the latest scientific data suggests that it will be with us well into 2021 and possibly beyond that. The virus’s mutation at the end of 2020 while expected – it’s just what they do – rattled the authorities. Being 70% more infectious, it has prompted more draconian measures. At the time of writing European borders are closed, London and much of the South East are under Tier 4 conditions and a full-scale 2021 lockdown cannot be discounted. The cost to retail businesses alone is set at £2bn per week Forbes’ figures suggest and the economy as a whole could lose upwards of £10bn.
For some sectors – notably retail and hospitality – this could be the final straw. Both are heavily dependent on seasonal trade and its loss will undoubtedly lead to the announcement of more business failures, alas. While furlough and the moratorium on evicting tenants over non-payment of rent (now extended to 31st March) has relieved some of the pressures on retailers, it’s given retail landlords further headaches. The overall outlook is decidedly uncertain.
Commercial landlords can expect to fare rather better. As ecommerce continues its unfaltering advance – it grew by 34% in 2020 according to emarketeer.com – so logistics companies will seek ever more space and demand for warehouses and courier distribution hubs will grow.
2. Brexit – the uncertainty over Brexit has been pinpointed as a significant factor in the property market’s sluggish performance between 2016 and the end of 2019. The decision to leave put international investors on edge, and despite Sterling losing over 9% of its value in the immediate aftermath which made UK property cheaper, buyers have remained nervous. It was only following election of December 2020 and the ending of the domestic Brexit stalemate that the market began to move again.
The announcement of the last-minute deal was music to most people’s ears. Given that 43% of our exports go to Europe and the foretaste of what no-deal disruption might look like as evidenced by events in Dover, a collective sigh of relief was in order.
With this weight of uncertainty having been lifted, both private and commercial landlords can look forward to a brighter 2021. From a private landlord’s perspective, the deal means a healthier (or at least less afflicted) economy and investment should increase. Commercial landlords can also look forward to an even better 2021, for while the deal is good news, it won’t allow for the seamless movement of goods that we have become accustomed to. Border checks and additional paperwork will mean delays and costs. To reduce the impact of these, businesses that are reliant on importing goods – retailers and manufacturers – and exporters – agriculture and manufacturers – will look to store more domestically and ship in ever larger volumes. The big supermarkets are already doing this. As no deal became more likely, so they stockpiled billions of pounds worth of goods to ensure supplies were maintained. This has pushed demand for warehouses and other commercial storage facilities up and sent rents up too. We can expect more of this in 2021.
This rise in demand for property and rise in the value of those properties does have a downside, one that all landlords need to be aware of. Property underinsurance, according to rebuildassesment.com, now affects 84% of UK properties and with values rising this is a problem that is likely to get worse as time goes by. Underinsurance can cost landlords dear as in the event of a claim they can be faced with a pay-out that is lower than the cost of repair or a rebuild. While the causes of underinsurance can be complex, the solution to the problem is simple: contact your local Coversure office today. They’ll help you get the right level of cover and protect you from any nasty surprises should you need to make a claim.
3. Change of a Property’s Use – thanks to COVID-19 millions of UK workers have found themselves working from home. Office for National Statistics’ figures state that 46% of people now do at least some work from home and that for 80% of them this is down to COVID-19. Discovering that businesses can function remotely and that their employees are often happier doing so has prompted many organisations to question the need for offices.
The BBC reported in August that 50 of the biggest UK employers have no plans to return all staff to the office full-time soon and 24 said that they did not have any plans in place to return workers to the office. This could leave commercial landlords with a glut of unwanted office space – often in exclusive, highly-prized city centre locations.
This is likely to lead to mass changes of use as offices and retail premises are converted into residential dwellings. Its something we have seen in Croydon with the conversion of Delta House, in Nottingham with the conversion of the old Royal Mail building and at the Lee Bank Business Centre in Birmingham. This is likely to mean that more commercial landlords will find themselves becoming residential ones – something that can only help reduce the chronic supply shortages we face.
4. Shortage of Housing Stock – since 2015 there’s been an annual fall in the amount of available rental properties of 1% (FCA’ figures). This has been due to a fall in buy-to-let landlords owing to the increased tax burdens of 2016 and a tightening of lending by banks. This has coincided with a rise in demand as would-be first-time buyers struggle to raise deposits. The result has been that rents have risen by 4% per year since 2015. While conversion of office buildings will give city centres a flow of new stock, these will take time to come on stream and with more and more people looking for coastal and country homes, they could be in the wrong place. The Royal Institute of Chartered Surveyors (RICS) predicts a ‘slightly positive’ 2021 in terms of rent rises, so it looks like residential landlords will be in for another good year as demand outstrips supply.
5. UK PLC – As Bill Clinton’s strategist James Carville put it, ‘It’s the economy, stupid’ in that it is the arbiter of pretty much everything that happens. In the case of rental property in 2021 it’s an epithet that’s on the money once more. While the Brexit deal will make things easier, 2020’s economic hangover will take some time to shake off. A record 370,000 people were made redundant in the 3 months to October and hundreds of thousands more were furloughed. The Government has borrowed around £400bn to combat COVID-19 and come March’s Spring Statement we may well see taxes start to edge up as they seek to repay some of that debt.
That said, with interest rates at historic lows, the stamp duty freeze running until (at least) the end of March, demand for rental property outstripping supply and international investors likely to come back, the property market will probably prove resilient in 2021.
Like Some Property Insurance Help?
We hope that this look at what 2021 holds for landlords has been of interest. If you would like some help protecting your property or would like a landlord insurance quote, then please contact your local Coversure office. They’ll be only too happy to help you get the cover you need and help you avoid the dreaded property underinsurance trap.