The UK residential property market boomed in 2020, with house prices ending the year at a record high, despite the shutdown of the sector during the first coronavirus lockdown.
Government measures such as the stamp duty holiday helped revitalise the market, while the lifting of lockdown restrictions prompted a surge in demand.
Lockdown also inspired homeowners to consider moving house, as the shift to remote-working allowed city-dwellers to move further afield and hunt out properties with access to outdoor space.
However, the end of both the stamp duty holiday and Help to Buy this year, as well as the end of the furlough scheme – which is expected to cause a spike in unemployment – could lead to a more subdued housing market in 2021.
The latest nationwide lockdown and concerns over new variants of the virus are also expected to dent consumer confidence further – at least until the coronavirus vaccine roll out is complete.
With all these moving parts, City A.M. spoke to these industry experts to get their predictions on what lays in store for home-buyers and those selling in 2021
What will happen to UK house prices in 2021?
Estate agent chain Knight Frank revised its UK house price forecasts down for this year after the latest national lockdown was announced.
It said house prices across the UK will remain flat this year, down from a previous forecast of one per cent growth in 2021.
However UK house prices could return to growth in 2022, with Knight Frank forecasting a three per cent rise next year.
Knight Frank also removed a percentage point from its prime central London and prime outer London forecasts, with house prices now expected to rise three per cent and four per cent respectively.
It said Greater London as a whole will see house prices rise around one per cent “reflecting the greater resilience of the economy in the capital as support measures are unwound”.
“Beyond this year, we expect the UK to outperform due to affordability constraints in London as demand is pushed further into the regions,” Knight Frank added.
Savills said the trade deal secured with the EU has “reduced some of the risk to the housing market”, but said 2021 will be a “year of three parts” for UK house prices.
The estate agent group has forecast that net house price growth in 2021 will be close to zero, although there are many factors that could sway property values throughout the year.
It said the stamp duty holiday, the effect of the current lockdown on people’s desire to move and their household finances, and the roll out of the vaccination programme would all have an impact on the housing market this year.
Savills predicted a rush to beat the stamp duty deadline of 31 March will help to sustain UK housing market activity in the first quarter of 2021. It thinks chancellor Rishi Sunak is likely to face pressure to extend the tax break or provide transitional relief.
Meanwhile the end of the stamp duty holiday will coincide with rising unemployment as the furlough scheme comes to an end. This will put the brakes on activity and could lead to house price volatility in the mainstream market, although the market for higher-end homes is likely to be more insulated against these factors.
EY Item Club
The EY Item Club isn’t feeling so positive on UK house prices this year, with predictions of a fall of as much as five per cent between the beginning and the end of 2021.
Howard Archer, chief economic adviser to EY Item Club, said the housing market is “likely to come under mounting near-term pressure as the economy continues to be affected by restrictions in most areas”.
He also cited the expectation that more Brits will lose their jobs when the coronavirus job retention scheme comes to an end in April, adding that earnings growth “looks likely to be limited”.
“There is also likely to be a fading of the pent-up demand effect on housing market activity,” Archer said.
“Consequently, the EY Item Club suspects house prices could be around five per cent lower than now by the end of 2021.”
He added that prices will stabilise later in the year “as the UK’s economy establishes a sustained firmer footing and the labour market comes off its lows, supported by the rolling out of the Covid-19 vaccines”.
Real estate adviser Avison Young echoed the viewpoints of other experts, saying the first quarter of 2021 will be busy as buyers rush to meet the stamp duty holiday deadline.
However after the first quarter “it becomes harder to ascertain the likely trajectory of London’s housing market.
The capital’s performance is “intrinsically linked to the economy and labour markets – as well as the global economy – and weakness in these would weigh on prices and rents,” the firm’s latest report on London said.
“However it would require a pretty bad scenario for London to see significant price falls later in the year,” Avison Young said.
“There is also a more positive scenario where widespread effective rollout of the vaccines leads to a faster economic recovery, more business confidence and less long-term damage than previously expected which would help support pricing along with the low interest rates.”