2020 was a year of mixed fortunes for the housing market. The initial lockdown saw a stagnation and slight fall in house prices, but this was followed by a strong rebound after July. This rebound also saw the average house price in the UK break the £250,000 threshold.
While the housing market is enjoying strong growth, some experts fear that its fortunes may change in 2021. Whether you’re hoping to buy or sell a home this year, you’ll benefit from keeping a close eye on how the next twelve months unfold. Read on to find out what 2021 may hold for the housing market.
A variety of factors encouraged a housing “mini-boom” in 2020
House prices saw a stagnation and slight fall during the initial lockdown due to social distancing rules, which meant that surveyors and prospective buyers couldn’t access homes that were for sale.
However, once the government lifted the lockdown, several market factors combined to drive a surge of demand for housing.
One of the biggest driving forces was the prospect of further lockdowns, which made many people reassess their housing needs. Due to the move towards remote working, people were now able to live further from their workplace, while many also wanted a home office.
The interest in the housing market was further increased by Chancellor Rishi Sunak’s announcement of a Stamp Duty holiday. This temporary halt in the paying of Stamp Duty, which could save buyers up to £15,000, gave many people further encouragement to move home.
This combination of factors led to a strong growth in house prices. According to a report by mortgage lender Halifax, published in the Guardian, the average house price rose by more than £13,000 during 2020.
However, many experts fear that this growth may not last as the economic fallout of the pandemic may yet derail the market’s growth.
A rise in unemployment could drive down house prices due to forced selling
One of the biggest potential problems that the UK economy faces in 2021 is a rise in unemployment.
When the government first implemented the initial lockdown, it announced the furlough scheme to help the millions of Brits who were unable to work. The scheme was meant to end in October 2020, however the Chancellor decided to extend it in light of the third national lockdown.
While the government chose to continue the scheme through to the end of April 2021, it seems unlikely that they will extend it again. This is largely because of the high cost of the government’s pandemic response, which has forced it to increase its borrowing.
When the scheme draws to a close, it is likely that unemployment will rise as many companies have had to downsize due to the pandemic. If it does, it will likely leave many homeowners unable to keep up with their mortgage payments.
This may lead to widespread repossessions from banks, as well as a subsequent forced selling of houses. This would create a glut of supply, lead to a buyer’s market, and would drive down prices.
The end of the Stamp Duty holiday could disrupt thousands of house sales
The Stamp Duty holiday was one of the biggest factors that drove the housing mini-boom after the initial lockdown in 2020. However, it is set to end on 31 March 2021 and, when it does, experts predict there will be a fall in house sales.
There have been calls for the government to extend the holiday in order to avoid a market slump. Since the end of the holiday will coincide with the end of the furlough scheme, it may have a significant impact on the housing market. In a worst-case scenario, a slump could reverse the gains made during 2020.
There are also concerns that the end of the Stamp Duty holiday could disrupt thousands of home transactions that have not yet completed.
According to a report by property analyst TwentyCi, published in the Times, around 325,000 sales could be affected by the reintroduction of Stamp Duty. This is because a significant portion of buyers can only afford to move due to the tax saving.
This pressure on buyers has caused a slight monthly dip in house prices. A report published in the Telegraph noted that average house prices fell 0.3% in January, making some experts wonder if the mini-boom is running out of steam.
If the government does not address the factors that are impacting the housing market, it does seem likely that there may be a fall in house prices in 2021.
However, even if this is the case, it wouldn’t necessarily be the end of the world. A glut of cheap properties on the market would be able to help many first-time buyers get onto the property ladder, as well as providing opportunities for buy-to-let landlords.
Get in touch
2021 may offer many opportunities to potential buyers, so if you want to secure a mortgage, we can help. Email us at office@verve-financial.com or call 0330 320 5048.
Please note:
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Buy to Let Mortgages are not regulated by the Financial Conduct Authority.
