Sunday Supplement 29/11/2020

Nov 29, 2020

Today’s supplement is dealing with 2021….Next week we will look back at 2020 and what it meant for the market.

All of the questions, input and focus is on 2021 at the moment and let’s summarise the main points that keep recurring:

  1. base rate stabilised at 0.1%, potentially to drop if anything, potentially soon after 31st January in the event of a no-deal brexit.
  2. March 31st offers a cliff edge at the moment with withdrawal of the stamp holiday (high chance of extension or revision of the tax), end of furlough (job support scheme or similar very likely to recur, reverting back to the first/second plan as at 1st November before the 11th hour changes), international investors subject to a 2% stamp hike (limited effect likely). Before, the 6-8 weeks after such a cliff edge have been interesting with much lower transaction volumes and a few deals around. However as you can tell, I expect a few things to change.

    Definitely a period to watch especially late April/early May. Don’t let the tax tail wag the dog.

  3. unemployment. Bound to rise – no-one disagrees. However, how far and fast is the first question….and how long for is the second? Many redundancies (c. 330k, highest on record) were made in October as furlough was supposed to end. The scheme was being scaled back by about 70-75% as the job support scheme came in.
  4. “back of the fag packet” approach seems then to suggest another 100k redundancies, some of which may be halted/stopped by the job support scheme if it is indeed reintroduced after March 31. Then we have redundancies due to liquidation. Much harder to estimate because of limited debt pressure that is being applied at the moment. How long will this go on – how far will the govt kick the can down the road? A while yet in my view. So my feeling is that unemployment won’t be as bad as forecast. Current best guess is around 7.5% at end of q2 2021 so I’m going to go “unders” on that one.
  5. demand. A lesson on this front, this time round, is that the portals seem to have the best data. Rightmove release it generally for marketing purposes – zoopla are far better at presenting it and offering informative reports. The bottom lines:
    Transactions down only 6% this year compared to 2019 – that is incredible. 20-30% down across the south east.
    Volumes expected to be relatively normal in 2021 although that will be front-loaded somewhat in the anticipation of stamp duty returning. In a normal year transactions agreed by 31st December see 54% complete before March 31st, whilst there will be more clamour to complete this number can only go up so far.
  6. supply. We will have to see, you would think many brought forward plans to sell on the back of the stamp holiday, however there will be a good slice who have battened down the hatches until covid has gone “away”. Will that happen in 2021 though? I’d expect supply to remain tight.
  7. availability of credit. Is this the time to push terms out even further to make purchases more affordable? Now interest rates are so low, the capital repayment element is the governor of affordability? Probably not the time but this is inevitable in the long run. Let’s see! I expect credit supply overall to remain good, as this is something the government and the bank of England do have a good handle on.

So we could well see a volatile, sideways market next year. But I wouldn’t bet against it moving upwards rather than downwards. The press has been negative but not as negative as April this year….choppy waters and you must remember not to be a motivated buyer and to buy assets that are fundamentally sound. Good luck!