In 2019, Butterfield Mortgages Limited (BML) surveyed a sample of property investors to find out how they were planning to manage their investment strategies in 2020. The results were enlightening, revealing that investors were looking to traditional tangible assets over new asset classes.
For example, one fifth of those Butterfield surveyed said they intend to invest more into property in the new year. What’s more, 64% acknowledged that they did not consider cryptocurrencies to be a reliable investment.
With 2020 now in full swing, all signs indicate the coming 12 months will be nothing short of eventful. While it is difficult to predict exactly how Brexit and low interest rates are likely to impact the financial markets, there are some astute observations that can be made based on the current political and economic climate, partly inspired by the BML research. Butterfield have listed their initial predictions below.
Investors want market stability
The Conservative Party’s election manifesto is a good place to start. In the lead-up to the December general election, Boris Johnson’s party campaigned on two important issues––“getting Brexit done” and increasing investment into the public sector.
Of course, it’s too early to say whether either will be implemented as promised. But regardless of one’s political leaning, there is a general sense of optimism that we will not be facing the same political stalemate we experienced in 2019 as a result of a minority government being in power.
Indeed, there is already evidence that the economy, and in particular the property sector, has been rallied by the new political order. Analysis from Savills evidences this, showing that prime central London property prices may be set to grow by as much as 3% in the coming year. This is excellent news after years of stagnation and prevarication in the market––there were reports that as much as £2 billion was cumulatively knocked off total London house prices between April and October 2019.
Foreign investment into bricks and mortar
Naturally, however, it would be naïve to predict growth without considering the factors that may shape the market this year. Poorly considered policy, for example, may have the potential to hamper the market. Last year, the Conservative Party suggested an additional stamp duty surcharge for international purchasers of UK property. Whilst the policy is well-intended, aiming to reduce demand for already limited supply, it could in fact undermine the UK as a top destination for bricks and mortar investment.
However, international investors find themselves in an opportune position. A weakened pound looks like it could coincide with a more buoyant market—amounting to favourable conditions for inward investment into the UK and, specifically, the prime central London property market. With UK property cheaper than it has been in years, exchange rates could help further augment to the market’s uptick.
Let’s not forget Brexit
Finally, we should not forget that Brexit has yet to be properly addressed. Yes, progress has been made in recent weeks, but there is still a long way to go. The prospect of a disorderly Brexit is by no means completely off the table.
Prime Minister Boris Johnson has successfully passed his EU Withdrawal Bill through parliament, though there are still plenty of questions regarding just how Brexit will be properly managed in the coming months, and indeed years. The aforementioned BML research revealed that 42% of UK investors are holding off making significant investment decisions until Brexit has been resolved.
Considering all aspects of the current state of affairs, the UK economy, and property in particular, is set for an eventful year. As ever, there are risks, but with a majority government in power providing consistency, these seem to be less concerning than the cliff-edges of 2019.
As confidence and clarity returns to the market, we are likely to see more transactional activity, particularly when it comes to property investment.
Alpa Bhakta is the CEO of Butterfield Mortgages Limited, part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited. Butterfield Mortgages Limited is a London-based prime property mortgage provider with a particular focus on the needs of UK and international HNWIs.