Outlook for Island House Prices

It may be because all the media and 'experts' still working from home have plenty of time on their hands.  Whatever the reason, we can never remember a period when so many articles were being written making predictions about house prices - and being written by so many people who are not actually working directly in the housing market and meeting buyers and vendors.

If you are a potential home mover we sympathise, as you try to sift through all the myriad predictions and forecasts to work out what might happen next.  To try and help, we thought it would be timely to tell you what we are seeing on the ground and how the market fundamentals might play out in the months ahead.

Fact 1
First things first - some fundamentals.  There really is no such thing as 'the UK housing market'.  Each area has it's own local market conditions and factors influencing supply and demand for housing.  The Island (being an island) is a micro market in itself.  Activity here is undoubtedly influenced by what is happening on the mainland, especially for people retiring to the Island or changing lifestyle, but that is only a single factor affecting Island house prices.

Fact 2
Demand from buyers is in our experience most directly impacted by availability of mortgages and job security.  Mortgage rates are at historical lows and mortgage availability is generally good for buyers moving with a large deposit.  Loans of 90% or more of property value are hard to come by however, making life difficult for first time buyers.

Buy to Let investors with a 25% or greater deposit have a good choice of mortgage options and since lockdown ended, we have seen a significant uplift in investor interest, especially as interest rates on ISA's and building society accounts seem likely to stay low for years to come.  We expect Government to bring strong pressure on the banks to keep lending as cutting credit becomes a self fulfilling worst case scenario.  The banks could easily be the villains of the piece again, but we don't think the Government will allow that to happen.

Demand from buyers is currently strong and most sensibly priced property is selling quite quickly.

Fact 3
Housing supply is fundamentally almost fixed in the short to medium term.  This underpins prices.  Unless sellers have to sell for some reason, they will not put their property on the market if they cannot achieve what they believe is a reasonable price or tie up a deal on a move upmarket, where the 'price to change' is all that really matters.  There is a steady supply of new properties coming to market, but demand still outstrips supply.

The current stamp duty holiday has given market activity a significant boost.  This will be temporary.  With the stamp duty cuts ending on the 31st March, really any one who wants to take advantage of it must have found a property to buy and/or be sold by the end of January 2021.  It's a short term market fillip not a long term tax break.  When it ends, it will be the underlying market fundamentals that count.  We believe these are pretty strong.

Fact 4
Many of those worst affected by the Covid19 furlough were not in the market to move house.  It is a case of 'have' and 'have nots' when it comes to the housing market.  The end of furlough is going to be painful, but it will probably have a bigger impact on the rental sector than on people selling up and moving to the Island or moving locally.  It's a hard truth, but true nonetheless.

The 'expert' predictions of huge drops in house prices by the end of 2020 have already been shown to be wide of the mark.  Prices will not fall by 30% this year.  We do not believe they will fall in a significant way next year either.

Fact 5
On the ground we see people being sensible.  Prices are firm but not rising uncontrollably.  Buyers are borrowing sensibly and choosing carefully.  Nicely presented family houses in good locations are selling like hot cakes right now, but even in a more tough market there is always demand for well priced, attractive family homes.  The Island is seen as a safe, attractive location for lockdown buyers keen to move out of the cities. This is probably part of a longer term trend, but we think it will be more gentle paced and measured than many have predicted.  This has boosted sales over £500,000 and definitely pushed up demand for second homes and holiday lets.

So what do we think will happen next?

• The long term fundamentals for the Island property market are good.
• We see prices gently rising and firm until Spring 2021 and then 'bobbing along' with a slower but sustainable market.
• Rental demand is strong and will remain strong especially for 2 and 3 bedroom houses.
• The Island looks a very safe bet for a second home or a holiday let.  This will underpin the 'character' properties and coastal locations.
• The Government will re-introduce stamp duty incentives for first time buyers once the current Covid measures end next March.

The current stamp duty holiday makes this a great time to move, especially if you are moving up-market, buying for investment or a second home.  If you want to take advantage, you should act now.

We do not believe house prices on the island are going to see a hard fall.  We see prices at this time next year being broadly similar to 2020.

Transaction volumes will decline back to a more subdued (normal) market level once the current stamp duty incentives end, but the fundamentals will remain strong and support the sale of properly priced and attractive homes.

The great thing about property is that not only is your house a home, but it is also an asset incorporating land, materials and labour - something that can't be electronically created or deleted and devalued or taken away.

It is the enduring safety of 'bricks and mortar' that makes it what it is.


Here's a couple of famous quotes that sum it all up quite nicely:

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”  

Franklin D. Roosevelt

“If you don’t own a home, buy one. If you own a home, buy another one. If you own two homes, buy a third. And, lend your relatives the money to buy a home.” 

John Paulson, investor and multi-billionaire