UK house prices 2021: an expert's view

The UK property market has been a widely discussed topic in 2020 – as have predictions into 2021. Like many other industries, it has had to deal with ongoing grapples over Brexit, a global pandemic, two national lockdowns and the subsequent restrictions that were put on our daily lives.

However, as we reported back at the beginning of November, UK house prices continued to perform strongly – in fact, at the fastest and strongest annual rate in over four years. 

Despite – and to some extent because of – the coronavirus pandemic, prices rose sharply year-on-year. In October, the Halifax building society reported, an average UK house cost over £250,000 for the first time, with house prices rising 7.5% compared to 2019. Detached houses saw 6% house price rises, with the average detached home gaining nearly £28,000 in total. 

But how do housing experts see house prices going forwards into 2021? David Hannah, property tax expert and founder of Cornerstone Tax, shares his views on the UK property market in 2020, and what we might expect it to look like in 2021. 

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Is the housing market going to crash?

'Unlike many other industries, the UK property market has proven its strength and resilience over the past few months,' says David Hannah.

'This was in no small part due to the Government’s determination to prop up the market by introducing the stamp duty holiday. Unveiled by Chancellor Rishi Sunak in July, the holiday has been credited with fuelling a mini-boom in the property market. 

'According to recent figures released by HM Revenue and Customs, a total of 105,630 residential transactions took place in October, making it the busiest October in at least a decade. An extraordinary £1.9bn was raised from stamp duty in the third quarter of the year alone.

'There is much speculation about the long-term impact that the holiday will have on the UK's housing market, with recent figures from Rightmove predicting that British house prices will grow an average of four per cent in 2021. With Brexit negotiations still ongoing, the implication that this will have on the UK's housing market remains to be seen.

'2021 will be an interesting year for the property market, with the continuation of the stamp duty holiday giving the market a boost, but the economic impact of the pandemic and Brexit likely to drag it back down,' continues David.

'With that in mind, we predict that property prices will most likely stay steady early in the year, before sliding back in the late spring and early summer. Although predicting further ahead can be a little difficult in times of such uncertainty, we expect that prices will start to nudge up again at the end of the year.'

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How will Brexit affect house prices?

'One of the potential influences on 2021’s property market is set to be Brexit. In the months following 2016’s referendum result, the upward price trend steadied – although recovered fairly rapidly – and we may see similar stagnation in the first half of 2021. 

'A no-deal Brexit could go one of two ways: it’s possible that demand may fall due to reduced foreign investment (a key factor in house prices, particularly in London), but it’s also likely that a weak pound attracts investors that can get more for their money, thus boosting the market. The wider economic impact of a no-deal Brexit is also likely to affect the market, with overall uncertainty possible, and house prices may waver. 

'However, immediate Brexit uncertainties will probably be offset elsewhere. The boost in prices due to reduced Stamp Duty is likely to continue until the end of March, when the scheme ends. Further changes to Stamp Duty will also impact the market this year, with a 2% surcharge for overseas buyers coming into effect on 1st April.'

Will house prices fall in 2021?

'With these changes in mind, we’re likely to see prices continue to rise (albeit at a slower rate) in the first quarter, as buyers push to get their sales through before the end of the stamp duty holiday – followed by a sharp drop in transactions in the spring as any lasting fallout from Brexit and rises in taxes act as a dampener on market activity and probably a dampener on prices.'

How will the pandemic affect house prices in 2021?

'The impact of the pandemic on the market is likely to be lasting. Space will continue to be a deciding factor in transactions, as buyers look to upsize after a year spent mostly at home – requiring an extra bedroom or a home office space. The wave of movement out of cities will likely continue, as employees continue to work remotely, and we move from a city-centre based economy to more of a local one. 

'With this in mind, demand for rural and ex-urban (outside the cities) properties will continue to rise. Outdoor space will be a significant attraction for buyers. Inner city properties or properties with limited or no gardens will remain unattractive and may suffer price drops throughout 2021 as supply outstrips available demand – some parts of major city centres have already seen this trend develop during the stamp duty holiday.'

How will 2021 house prices affect first-time buyers?

'A dent to house prices in mid-2021 could see an increase in first-time buyers entering the market. Unfortunately, 2020 was a hard year for first-time buyers, as economic uncertainty resulted in a reluctancy from banks to lend to first-time buyers, with high loan-to-value mortgages all but disappearing from the market. We’ve seen evidence of banks down valuing properties by over 20% during the stamp duty holiday where first-time buyers are involved but, not down valuing them quite the same amount when a second time buyer with a 30 or 40% deposit is involved. 

'As the economy recovers towards the end of the year and banks become more willing to lend to first-time buyers; making the most of lower prices, getting on the ladder and building themselves an equity stake could be a wise decision for young buyers – as whatever happens this year due to Covid and Brexit, the market is likely to have recovered over the three-to-five-year timeframe by the time they are looking to move up.'

House price predictions 2021

'In summary, the current upward market trend will continue during the early months of the year, as buyers make the most of the more lenient stamp duty charges. As we enter the second quarter, the overall economic after-effects of Brexit and the pandemic crisis – rising unemployment, the reduction of city centre economies, the return of stamp duty and the reduced availability of mortgage credit – may mean that the pool of buyers shrinks, leading to prices softening in the summer. 

'As we near the end of the year, we should start to see the economy stabilise, with a tentative rise in mortgage lending and house prices. The shape of a new British economy will be emerging which is perhaps broader, more stable, and more sustainable in the future.'

Thanks to David Hannah of Cornerstone Tax