Looking Back, Looking Forward, A Property Market Review and Predictions for 2021

Many people will have been glad to see the back of 2020 – a year of huge upheaval and economic shocks. However, while Covid-19 and the gathering uncertainty of Brexit did nothing to boost the UK economy, it certainly wasn’t a bad year for property investment.

In this article, we’ll take a look back over the high and low points of 2020 before considering some of the more credible predictions for what the coming year might have in store.

2020: A Review

Soon after the scale of the coronavirus pandemic became clear in the spring of 2020, many commentators issued dire forecasts about the likely impact on the economy, employment and house prices.

In June 2020, for example, the Centre for Economics and Business Research predicted that house prices would fall by 13% by the end of the year. Around the same time, Savills predicted that transaction volumes could fall by as much as 45% over the course of 2020. Such a drop, it argued, could translate into price drops of either -5% or -10%, the outcomes depending upon the severity of the pandemic and the effectiveness of the UK government’s response.

The greatest threat to prices was seen as massive job losses, which would cause average standards of living to plummet and, with them, people’s ability to afford new or existing mortgages. There were forecasts of widespread house repossessions and severe challenges involving tenants being unable to pay their rentals.

In the event, a speedy response by the Treasury helped to mitigate such risks. The Chancellor introduced the furlough scheme and support for the self-employed, and this undoubtedly played a role in helping to prevent the nightmare scenario that many had feared.

What was more unexpected was the immense resilience of the UK housing market. All conventional economic wisdom pointed to a contraction in average prices. At a time when millions were living on 80% of their usual incomes, or even less, there should have been little or no capacity in the economy for prices to rise.

The reality, of course, was very different. Rather than dying away during the first lockdown, housing demand quietly built, like water rising behind a dam. When the market re-opened, that pent-up demand surged through, starting one of the strongest periods of house price growth in recent years. According to a statement issued by Halifax on 7th December, house prices rose by 7.6% in the 12 months to November 2020, marking the strongest period of sustained growth since 2004.

Part of this can be attributed to pent-up demand, and some it will also have been due to the Stamp Duty holiday. Many estate agents also reported that the lockdown had caused people to re-assess their lifestyles, and that this was reflected in a change in their housing priorities. Consequently, a further portion of the rising demand might have been the result of more people seeking larger homes, or accommodation with better access to gardens, parks and/or open spaces.

Whatever the balance of motivations, demand certainly remained very strong. Different bodies give different estimations of the overall prices rises for 2020, but they all point to the same strongly upward trend.

Source:                                   House price growth

  • Zoopla                                         4.0%
  • The Land Registry                     4.7%
  • Rightmove                                  6.5%
  • Nationwide                                 7.6%      

It is also worth noting that Savills, which originally forecast falls of -5% or -10%, revised its figures part way through the year, culminating with a prediction of 4% average growth UK-wide.

Property Investment Versus Other Asset Classes

The gains in 2020 will have pleased many investors who either joined the market that year or who already had property and feared that capital values would fall. In the end, they saw the values of their properties rise significantly, and all this at a time when anyone with money to invest would have found few other good options on the table.

2020 was the year in which the Base Rate fell to its lowest ever value and when the Bank of England’s Monetary Policy Committee was giving serious thought to introducing negative interest rates. As a result, banks and building societies cut their own rates and savers faced the grim prospect of the interest on their savings accounts failing even to match the rate of inflation.

In short, high street accounts became a very poor home for hard-working money. What was worse, the stock market looked little better. 2020 saw considerable fluctuation in the value of stocks and shares; for many, it will have been a period to be ridden out, rather than an opportunity to make big gains. Some assets fared well but, overall, bricks and mortar represented a more stable and rewarding choice.

Rental Demand and Rental Values

One of the most important and enduring reasons for the attractiveness of property as an investment class is its ability to generate a regular rental return, as well as longer-term gains in terms of capital value.

Over the course of 2020, despite the furlough period and everything else, average rental values still exceeded the rate of inflation. According to the HomeLet Rental Index, as published in December, “the average rent in the UK is now £974, … up 2.9% on last year.” Moreover, “when London is excluded, the average rent in the UK is now £828; this is up 0.9% on last month and 5.6% on last year.”

Prior to 2020, capital growth rates had been relatively modest and, consequently, many investors had prioritised yield over capital growth (if only perhaps because expectations for price growth were so low.) Yield is a measure of the annual return that an investment produces as a percentage of the original outlay and, by and large, the yields on property were very good in 2020.

According to an article published by Seven Capital in December 2020 “the average UK rental yield sits at 3.53%, so anything over that amount can be considered overperforming.”

When you consider that UK rate of inflation was 0.3% in November, according to ONS, then an average rental price increase of 5.6% represents a sizeable real-terms gain for landlords. By the same token, a gross yield of 3.53% is an excellent return. Add to that some strong capital growth and it’s clear that property was an exceptionally worthwhile investment in 2020.

However, a yield of 3.53% is just a broad national average, just like the capital growth figures noted earlier. Behind those numbers lie much more chequered local and regional patterns, and – as ever – choosing the right property in the right location will have made a considerable difference to the value of an investor’s total return.

High-Performing Property Markets in 2020

Over the course of 2020, most UK regions saw significant price gains. According to December figures published by PropertyData, the best three regions were the North West, Yorkshire & Humber and the East Midlands, all of which saw capital gains of 6.6%. At the bottom end of the table, London prices rose by only 3.9%, and those in the East of England by only 3.4%.

Righmove’s December 2020 figures show a similar pattern, with the better-performing markets being found in the Midlands and the North.

Region:                                   House price growth

  • North West                                      10.6%
  • North East                                        9.1%
  • Yorkshire & Humber                      8.8%
  • Wales                                                8.2%      
  • West Midlands                                8.1%
  • Scotland                                           7.5%
  • East of England                               7.2%
  • South West                                      7.2%
  • East Midlands                                  7.1%
  • South East                                        5.5%
  • London                                             3.5%

To some degree, this pattern demonstrates a rebalancing of the national housing market, with many of the lower-priced markets showing some of the biggest gains. Greater affordability is also a key reason why the same regional pattern tends to appear in the rental yield tables. LiveYield reports the following regional results, as recorded in December 2020.

Region:                                   Gross Rental Yields

  • Scotland                                   5.7%
  • North East                               4.9%
  • North West                              4.8%
  • Yorkshire & Humber              4.5%
  • South East                                4.5%
  • Wales                                        4.4%      
  • West Midlands                        4.4%
  • East of England                       4.3%
  • East Midlands                          4.2%
  • London                                     4.1%
  • South West                              4.1%

Drilling further into those figures, it’s clear that some of the bigger northern cities have performed especially well. LiveYield reports some of the best city-wide yields in Glasgow (7.9%), Liverpool (6.3%) and Manchester (6.1%). Looking more closely still, some local postcodes are delivering gross yields of above 10%.

House Prices in 2021

So much for 2020. It was a rewarding year for many property investors but what matters now is how the market will evolve over the coming year and beyond.

Currently, price forecasts for 2021 vary enormously. Rightmove is forecasting +4% growth over the course of the year, while Zoopla is predicting +1%, and Savills is predicting no change at all (0% growth.) Halifax is projecting a fall of between -2% and -5%, but includes the caveat that “forecast uncertainty is much higher than usual given the current economic and political environment.” Meanwhile, the Office for Budget Responsibility suggests that prices could drop by as much as -8%. However, it also notes that this would only partially erode the gains made this year, and that it expects “a steady recovery from 2022 onwards.”

Back in September 2020, CEBR predicted a huge -13.8% decline in prices, which would be 0.8% more than the slump it had previously predicted for 2020. However, that prediction was made before the effectiveness of the new Covid vaccines had been assessed. All commentators have agreed that finding an effective vaccine would always one of the biggest influences on future price changes, so the good news from the world of medicine might soon prompt CEBR to come to adopt a more optimistic outlook.

The Stamp Duty holiday was also regarded as an important factor in the price rises of 2020. It encouraged many more transactions than would normally have taken place over the late autumn and winter seasons. What’s more, any upturn in activity also tends to drive higher price inflation because so many more people are competing for the same properties.

On the 17th December, the Chancellor Rishi Sunak confirmed that his next Budget would take place on 3rd March, which still gives him time to make an announcement about a possible extension to the Stamp Duty holiday. Of course, it is possible that he might extend it before then or that there might be no extension at all. However, thus far at least, it has undoubtedly acted as a stimulus to the market.

However, while Covid and Stamp Duty are likely to remain important short-term influences on house prices, short-term changes are not really a concern for most serious investors. They will tend to ignore short-lived fluctuations in capital values because property investment is, at heart, a long-term venture. Over longer periods, the average trend has been undeniably positive.

Longer-Term Trends

At the end of November, This Is Money produced a map showing how average property prices in England have changed since the year 2000. Manchester was a clear front-runner, having seen average gains of 143% over the last 20 years. Even in London, a city which has been a poor performer in recent years, homes had more than doubled in value, gaining 116%. Overall, the map shows that the average UK property gained nearly £100,000 in value over the last two decades.

Consequently, whether or not 2021 produces a short dip in prices, investors should not be unduly concerned. If prices hold strong then existing properties will continue to produce capital gains. If prices drop, that could mean an opportunity to acquire new property at a more affordable price and with the prospect of better yields.

In either case, the fundamental rules of supply and demand should force prices up in the longer term. Rental demand is still exceptionally strong and yet there is a significant under-supply of good quality homes. Taken together, they constitute a recipe for rising average values.

The Office for Budget Responsibility seems to share this view. In the short term, it acknowledges that “House prices are expected to fall back in 2021, driven by the end of the Stamp Duty holiday and the hit to household incomes from the labour market adjustment that we assume will follow the end of the Coronavirus Job Retention Scheme.” Beyond that, however, it expects prices to recover.

Savills makes a similar prediction. In its 5-year mainstream capital values forecast, it projects a flat 2021, followed by strong growth in most UK regions, led by the North West. In the summary below, which shows the most likely top 5 regions, we have removed Savills’ 4% figure for 2020 and adjusted the cumulative figures accordingly.






Cum. Total

North West












Yorkshire & Humber






North East






East & West Midlands







At the national level, another source, Statista.com, makes the following price growth predictions:

                                   House price change

  • 2021:                                    -1%        
  • 2022:                                    +3%
  • 2023:                                     +5%
  • 2024:                                    +5%
  • Cumulative:                       +12.4%

JLL’s November forecast paints a similarly bright longer-term picture:

                                   House price change      Rental value change

2021:                                    -1.5%                                    -1.0%

2022:                                    +2.5%                                   +2.0%

2023:                                     +4.0%                                   +2.5%

2024:                                    +5.0%                                   +2.5%

20:25:                                   +4.5%                                   +2.5%

Cumulative:                       +15.2%                                 +8.75%


Just because the calendar ticks over to a new year, it doesn’t mean that anything fundamental has changed.

For a while at least, Covid will continue to be a constraining force on the UK economy. Many economists still expect large-scale job losses to occur this year, and Britain’s new international trading arrangements will also present important challenges.

In 2021, we are likely to see plenty of worrying headlines about lay-offs, falling incomes and other fall-out from the pandemic. We may also see a short-term hit to average prices. However, none of these consequences arise from heavily entrenched economic forces. They will be transient and, within a year or two, investors are likely to find themselves in a much more familiar environment.

Over a period of 5 years or more – the sorts of timescales that are of most interest to professional investors – the outlook is still good. That’s because the market’s principal influences – supply and demand – are unlikely to change very much. In fact, the pandemic might even have strengthened the case for buy-to-let investment.

During the lockdown, social distancing requirements and the need for workers to self-isolate caused house-building rates to falter. At the same time, a furlough scheme that gave workers only 80% of their usual incomes will have done little to encourage first-time purchases by those who might already have been struggling to afford a mortgage.

In other words, supply has been further constrained and because many tenants still cannot afford to buy, rental demand should remain as strong and reliable as ever. These are the fundamental forces of the UK housing market and, for the near future at least, investment conditions still look very appealing.

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