Is Demand for Property Going to Fall?
The initial reaction to the pandemic was that the UK property market would fall. In theory it was a pretty sound prediction. With lockdowns for the public and an economy that had been all but closed down, demand would presumably evaporate – therefore dropping the price. With estate agents unable to open and people legally unable to move it was perfectly logical to assume that this would have an effect on overall prices.
That didn’t happen, though, and with hindsight we can see that, with government support, the market stayed steady through the lockdowns before eventually shooting back out of the traps at a pretty phenomenal rate.
Nearly 2 years on from those lockdowns, the UK property market has seen consistent price rises of around 10% across the country in both 2020 and 2021 on a year-on-year basis, solidifying the truly incredible recovery.
What we can say, in hindsight, is that there were a number of factors driving that level of demand that aren’t likely to be sustainable in the long run. Here, we take a look at what’s changing.
Stamp duty holiday is over
One major factor that was driving that housing demand over the past few years was the government’s stamp duty holiday scheme which meant that stamp duty, the property sale tax, was not payable for most people during or directly after the pandemic.
This meant a huge surge in demand for housing when the lockdown lifted in May 2020 and seems to have triggered a sustained drive for buyers. It also appears to have created a bottleneck where supply was being completely overwhelmed by demand, creating a lasting effect.
We now appear to be at a point where things are starting to settle down somewhat, with the market finding somewhere near its true level. If that means that demand and price growth drops, what is that likely to mean for investors?
Investing when demand drops
In brief terms, this is what a natural cycle looks like and it’s nothing concerning, especially for property investors.
In terms of capital appreciation, it’s quite nice to see your asset increase in value, but realistically most property investors know that a passive income is the key to long term growth and sustainability.
If the value of your asset goes through the roof but your rental income doesn’t follow then your yields drop and the income you make becomes relatively less. With inflation currently tracking somewhere near 5%, rental growth should be considered much more important than the overall value of the property.
That’s not even to say that values will drop, it’s vanishingly unlikely that they will, but growth slowing down is no bad thing, it keeps rental growth in line and also makes it easier to grow your portfolio by keeping the entry price manageable.
There’s very little indication that demand for rental property will drop any time soon, so rents should continue to increase in a healthy way, so there really isn’t any need to worry about price growth.
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