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2021 has started with another national lockdown, though differing from the first lockdown in March-April last year in that the property market is staying open.

It means that many businesses, particularly in hospitality, will struggle to make it to the other side.

It also means that hopes of a return to anything like normality for city centres have been pushed out further.

Zeus – MPU 1

Indeed, the combination of a more infectious strain of the virus and the fact that this is the third lockdown means that many employers are now adopting working from home as a permanent solution.

Where people are allowed into offices, in small numbers, safety requirements have become onerous, including mask-wearing.

This has implications for the future of city centre offices, for commuter services and for the support networks office workers require. Whether this is a permanent shift can be debated, but it is with us for a while yet. It also has clear housing market implications.

According to home.co.uk’s latest asking price index, the market has started 2021 with much of the momentum of 2020 intact, and asking prices up by 4.9% on a year earlier.  This was driven by what it describes as the “phenomenal” strength of some northern markets, including Yorkshire & the Humber, up 10.1% and the North West, up 8.2%.

In contrast, there are clear signs of strain in London, from what it describes as the “London exodus”. Sales listings in Greater London in December were 68% up a year earlier, pointing to significant excess supply, despite which asking prices in January showed a 3% increase compared with a year earlier.

Though this was the weakest in the country it nevertheless suggested that reality has yet to sink in for London sellers.

That reality, perhaps, is a little more obvious in the rental market, where a 16.9% drop ion London rents in the past year contrasts with rising rents in most parts of the country, but was nevertheless enough to produce a 0.9% fall in rents nationally.

LonRes, in new research, also found price resilience in London, up 2.2% on a year earlier in the fourth quarter, in spite of an increase in supply and, as it says, “a combination of Londoners heading for the country and far fewer overseas buyers reaching our shores this year”. But it also notes that is 51% more stock on the market compared with a year ago.

The question for London, and for the rest of the housing market, is whether we are on the brink of a big slowdown. home.co.uk – despite the momentum in asking prices – strikes a big note of caution in its report.

“It is unrealistic to think that the UK property market will not be affected by the worst economic downturn in 300 years,” it said.

“In fact, the warning signs are already apparent. Rent arrears are on the rise, with more than half of UK landlords surveyed by the National Residential Landlords Association having lost income due to the pandemic. This is clearly not a sustainable situation.”

“Indeed, the true level of economic devastation is as yet unknown. Given the best outcome, that the virus is brought under control by vaccination, restarting the economy will not be like switching a light back on.”

“Many businesses (and livelihoods) will simply be gone for ever and it will take time for those businesses that remain to return to profitability.”

“Moreover, forbearance on the part of mortgage lenders is likely to be limited in the absence of further government intervention.”

Are the cracks starting to show as we move through January? For some stamp duty is the key issue, and the signals from the Treasury are now that the reduction will not be extended beyond March 31, not least because of the strength of the market. Others say stamp duty has not been the only factor.

Persimmon, the housebuilder, presenting a generally strong trading update on January 13, also said:

“On entering the third phase of tighter Covid-19 restrictions, whilst recognising the commencement of the nation-wide vaccine rollout, the uncertainties surrounding the potential impact of the pandemic remain, particularly with regard to unemployment levels and consumer confidence.”

“We are also mindful of the potential impact of an end to the stamp duty holiday.”

“In addition, whilst the completion of the free trade agreement between the UK and the EU has relieved some immediate concerns, including regarding increased customs duties on supplies imported from the EU, the broader impact of these new trade arrangements has yet to be seen.”

So far, the big picture is that London is weak but mainly that the market is suffering only a modest loss of momentum. Let us see if that remains the case in coming weeks.

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David Smith
David Smith has been Economics Editor of The Sunday Times since 1989. He is also chief leader-writer, assistant editor and policy adviser. David is the author of several books, including Free Lunch: Easily Digestible Economics; and Something Will Turn Up: Britain’s Economy Past, Present and Future. He is a visiting professor at Cardiff and Nottingham Universities and has won a number of awards including the Harold Wincott Senior Financial Journalist of the Year Award, the 2013 Economics Commentator of the Year Award and the 2014 Business Journalist of the Year Award in the London Press Awards.

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