UK PRIME PROPERTY MARKET REVIEW 2020
2020 has been the year that none of us could have predicted, yet the prime property market has shown resilience, strength and unprecedented growth
BY CHRIS DRUCE Senior Analyst, Residential Research
HOW HAS THE COUNTRY MARKET PERFORMED?
The prime country market made a bright start to 2020, with the decisive general election result in December 2019 reducing the political volatility that had curbed demand in UK property markets over the previous 12 months. However, the UK lockdown in March put the resurgent market on hold until 13 May. The prime country market has performed strongly since this time, and the number of offers accepted in 2020 was both an all-time record and 30% higher than 2019’s total, despite the eight-week market lockdown.
WHAT’S DRIVEN ACTIVITY THIS YEAR?
Prime markets have benefitted from pent-up demand generated during lockdown and people’s desire to change their lifestyles after the pandemic. There has been strong and sustained interest in having more space to live and work in and living somewhere with more greenery, which has played to the strengths of the country market. Lockdown gave people pause for thought and a resolve to act, and the subsequent activity saw a series of records broken during 2020. July saw the highest ever number of viewings and prospective buyers registering with Knight Frank. Meanwhile, the number of exchanges and offers accepted in October were all-time highs.
Country house prices enjoyed their best performance in more than four years in the third quarter of 2020
WHAT’S HAPPENED TO PRICES IN PRIME COUNTRY MARKETS? Country house prices enjoyed their best performance in more than six years in the fourth quarter of 2020, growing at an annual rate of 4%, according to Knight Frank’s Prime Country House Index.
WHY HAVE HIGHER VALUE PROPERTIES PERFORMED BEST? The discretionary nature of purchases at this level, sensitivity to political events and a series of tax changes since 2014, means price growth for higher-value properties has been weaker than the wider market in recent years, leaving greater scope for growth. The £5m and above price band was the strongest-performing segment in the three months to December, with growth of 5.1%. This pushed the annual rate of growth to 7.9% in that price bracket. Properties valued between £4m to £5m saw prices increase by 2.9% on a quarterly basis in Q4 2020, and properties valued between £3m to £4m by 2.7%.
HOW HAS LONDON FARED? London lagged behind the country market initially but has since seen a surge. October was the third highest month in five years for exchanges in London, although it should be seen in the context of a market that has behaved erratically in 2020. The overall number of exchanges was 19% down in the first ten months of 2020 compared to the previous year. However, prime London markets have returned to quarterly growth with prime central London registering 0.2% in the three months to October and prime outer London, which has benefitted from buyers seeking space, by 0.9%. Values in London are forecast to finish 3% down in 2020.
WHAT TRENDS HAVE EMERGED? Our Global Buyers Survey conducted last summer found over a quarter of respondents were more likely to purchase a second home as a result of the pandemic. The enforced adoption of working from home (WFH) on a national scale has disrupted the market too, with prospective buyers willing to extend their search areas to find the perfect property on the assumption that they will be commuting more infrequently. WHAT ABOUT THE FUTURE? The Prime Country House Index remains 13% below its peak in the third quarter of 2007 before the global financial crisis, suggesting there remains headroom for further price growth. By November a third of offers accepted in 2020 had not exchanged, which should ensure transactional activity remains high into the spring. The stamp duty holiday, which runs until the 31 March 2021, will continue to support activity in the wider market too. The deployment of vaccines for Covid-19 is likely to have a significant positive impact on sentiment in the coming months, while the pandemic’s impact on the way people live and work should see the prime country market continue to benefit from patterns of behaviour established in 2020. To stay abreast of changes in the market, and to receive up-to-date forecasts, visit knightfrank.co.uk/research
The threat of a no-deal Brexit has been averted by the signing of a trade deal between the UK and EU. While it won’t mark the end of political acrimony, the key point is that it removes the risk of a no-deal cliff-edge.
Despite the advent of WFH, traditional demand drivers in prime country markets hold true, including good schools. Properties close to primary schools rated ‘outstanding’ sell for an average of 10% more than homes located further away, Knight Frank research has found. Growing families, employment opportunities and lifestyle changes, especially after the pandemic, will continue to underpin moves.
Prime regional prices were forecast to finish 1% up in 2020, with growth of 4% in 2021. The forecast cumulative increase from 2020 to 2024 is 15%, slightly ahead of the mainstream UK market but behind the prime central London market, which is forecast to see a 17% increase over the same period.