How much money you have made in 2020 simply by watching the value of your home rise?

According to the latest figures from building society Nationwide, the average home value has shot up by 7.5% this year. That’s the fastest pace of growth for six years.

I bought my first property in 2002, a one-bedroom apartment in a market town in West Sussex. The timing was great in terms of relatively low interest rates and decent price growth. For my first few years of home ownership, I was making more money from those price rises than I was from my employment.

That’s an unusual set of circumstances, and certainly hasn’t been the case in every year since. In fact, since we bought our current home in 2005, the annualised growth over the past 15 years has been fairly subdued. But 2020 has been a great year for property prices, on average, even since the onset of the pandemic in March.

In this video, I’m taking a look at what’s driving home prices higher this year, why next year may be a completely different story, and why I’m convinced we’re set to see a regional rebalancing of property prices during the next decade. Stay tuned for that.

So, property prices up by an average of 7.5% in 2020, and up by 5.3% since the pandemic really kicked off in March. How on earth has that happened? The two big drivers seem to be policy measures designed to incentivise house buyers, but also changing preferences in terms of where and how we want to live. And it’s these changing preferences that could, in the future, contribute towards a regional rebalancing of property prices. I’ll come back to that in a moment.

According to Nationwide, house prices rose by an average of 0.8% in December compared to November. It means the average property price is now £230,920.

Robert Gardner, who is chief economist at Nationwide, said: “The furlough and Self Employment Income Support schemes provided vital support for the labour market, while a host of measures helped to keep down the cost of borrowing and keep the supply of credit flowing,” He also explained that the stamp duty holiday helped to stimulate demand, in some cases bringing forward plans to move home.

Another factor was the pandemic response from mortgage lenders, coordinated by the Financial Conduct Authority, offering mortgage payment holidays for people financially impacted by coronavirus. This financial support from lenders allowed more people to stay in their homes, rather than being forced to sell.
What’s quite interesting about these latest house price figures is how strongly the year appears to be ending. If you put your house on the market now, and start looking for a new home, you’re unlikely to benefit from the stamp duty holiday, which ends in March. The length of the conveyancing process means it’s likely to be well into the Spring before you exchange contracts. But that loss of the stamp duty benefit doesn’t appear to be deterring property market activity.

So policy measures, one factor inflating house prices. The other is our changing requirements from property. And this is the one that I don’t think is going away anytime soon. In fact, I’m convinced that longer-term it could result in a rebalancing of property prices. Allow me to explain.

The pandemic has prompted a lot of people to rethink their living requirements and preferences. We’ve been very fortunate throughout the pandemic, living in a sleepy corner of Surrey, walking distance from a range of independent food retailers, and with miles of footpaths through ancient woodlands on our doorstep. It’s been the perfect place to live through a global pandemic.

But I know that, for many people, living arrangements since March have been seriously difficult. Living in cities or towns, or in property without the space for working from home, are both factors prompting more people to move somewhere else. Estate agents tell us that there is high and rising demand for rural properties and homes with space for home offices.

It’s these changing property preferences, along with the looming introduction of fully autonomous self-driving cars, that I think it’s going to do something extraordinary to regional price variations. My theory is this; why live in a city like London when you can a) effectively work remotely (the pandemic has proved this), and b) hop in the backseat of your self-driving car and get driven to the office when you need to work there?

All of a sudden, higher property prices in London and the South East look unsustainable. More affordable property in arguably the more attractive parts of the country, for example by the coast in the South West of England, becomes a more viable option. I believe we’re going to see huge swathes of the population choose lifestyle over convenience for employment in the coming years.

But what about in the short-term? What are we likely to see for property prices next year?

We know what interest rates are going to stay low. There’s little prospect of an interest rate hike in 2021, as the economy hopefully recovers from the pandemic. We might start to see rate rises if price inflation edges up, but only if that is a rise in core inflation measures rather than temporary drivers, such as higher food prices in the short-term due to any Brexit disruption.

We know that the stamp duty holiday is scheduled to finish at the end of March 2021. But, as I mentioned earlier in the video, it’s probably already too late to take advantage of the stamp duty holiday due to the length of time conveyancing typically takes. Will the Treasury extend the stamp duty holiday or introduce a different incentive for the property market? Well, anything’s possible and this government does seem enthusiastic about supporting the residential property market.

We know that unemployment levels are likely to continue rising in the early part of next year. This latest raft of Tier 4 restrictions for many parts of England will no doubt be the final nail in the coffin for a large number of businesses forced to close. Yes, there’s the furlough scheme, and yes, there are grants available for rate-paying businesses, but that’s not going to entirely prevent a surge in unemployment.

Something else that’s likely in Spring 2021 is the introduction of changes to capital gains tax in the Budget. I’ve covered this in a previous video, which I’ll link up here somewhere, but essentially it might encourage some buy-to-let landlords to offload their property portfolios ahead of the Budget. Again, time is a factor here.

Nationwide says the outlook for the property market is “highly uncertain”, with Robert Gardner saying: “Much will depend on how the pandemic and the measures to contain it evolve as well as the efficacy of policy measures implemented to limit the damage to the wider economy.”

Which all brings me to this final thought; is your home an investment? I started the video by talking about making money from your home, when prices rise. But I’m a big believer that your main residence is not primarily an investment. After all, you need somewhere to live, a roof over your head.

When we look at examples of people downsizing in retirement, the money freed up from selling larger property and moving into somewhere more manageable is rarely enough to make a meaningful difference to retirement plans.

Rising property prices are a big help when it comes to levels of consumer confidence; the British economy is going to need all of the consumer confidence it can get in 2021 to help pull it out of its current economic slump. But I would urge you to not to view your home as an investment asset in the first instance, as nice as it is to think about rising prices putting more pounds, indirectly at least, in your pocket.

What’s your outlook for property prices in 2021?