What 2021 may hold for the housing market

The housing market has enjoyed a year of mixed fortunes in 2020, seeing a stagnation and slight fall during the initial lockdown and then a strong rebound since July.  This rebound saw the average house price rise to a historic high, breaking the £250,000 threshold for the first time in October.

Although the housing market is enjoying strong growth, experts fear that the new year might bring a change of fortunes. Whether you’re looking to buy or sell, you’ll benefit from keeping a close eye on how the new year unfolds. Read on to find out what 2021 may hold for the housing market.

A variety of factors has encouraged a housing ‘mini-boom’ in 2020

During the initial lockdown, property prices saw a slight fall as social distancing rules meant that surveyors and prospective buyers couldn’t access homes that were for sale.

Once the government lifted the lockdown, however, several market factors combined to drive a surge of demand. The move towards remote working and the prospect of another lockdown led to many people reassessing their housing needs, and estate agents reported a sharp increase in enquiries.

Chancellor Rishi Sunak’s Stamp Duty holiday, which he announced in his Summer Statement, further increased this interest. This temporary halt in Stamp Duty, which could save buyers up to £15,000, encouraged many people to consider moving home.

This combination of factors led to a strong growth in house prices. According to a survey by lender Halifax, reported in the Guardian, the average house price broke the threshold of £250,000 for the first time in October.

However, with future economic uncertainty caused by such factors as the prospect of high unemployment and the potential disruption of Brexit, many experts now fear that this growth may not last.

A rise in unemployment could trigger repossessions and drive down prices

Unfortunately, one of the biggest changes that 2021 will likely bring is a rise in unemployment.

When the government implemented the initial lockdown, it announced the furlough scheme to help millions of people who could no longer work. According to a report published by the BBC, around two million Brits were furloughed as of October 2020.

Whilst the government chose to extend the scheme through to March 2021, it seems unlikely that they will extend it further.

If unemployment rises when the scheme draws to a close, it will likely leave many homeowners unable to keep up with their mortgage payments and could ultimately lead to a rise in repossessions.

Typically, when banks repossess a property, they try to sell it on as quickly as possible. To speed up the sale, they often sell it for less than it is worth. If the number of repossessions were to rise, it could create a glut of cheap homes on the market which could drive down prices.

The end of the Stamp Duty holiday could disrupt ongoing sales

Given that the Stamp Duty holiday was one of the biggest factors driving the housing ‘mini-boom’, when it comes to an end on 31 March 2021 it is likely that there will be a fall in house purchases as the tax break will no longer be available.

However, there have been calls for the government to extend the holiday to avoid a market slump. Since the end of the holiday will coincide with the end of the furlough scheme, experts fear that its overall effect on the market could reverse the gains made in the latter months of 2020.

There are also fears that the reintroduction of Stamp Duty could throw a spanner in the works for thousands of home transactions that are in the process of being completed.

According to a report by property analysts Twentyci, published in the Times, around 325,000 sales could be affected by the reintroduction of Stamp Duty.

Many buyers used the money that they saved in tax to afford a larger deposit on a home, with 37% of buyers stating that they could only afford to buy because of the tax break.

Some experts fear that when the tax is reintroduced, many buyers will have to withdraw from the sale. Twentyci predicts that these withdrawals could have a knock-on effect that could affect as many as 53% of house sales.

The uncertainty of Brexit may exacerbate other economic problems

The controversial topic of Brexit has been in the headlines for many weeks as the deadline looms ever closer and Britain prepares to finally leave the European Union.

Some experts fear that economic uncertainty could worsen the existing economic issues that are affecting many people. For example, if the UK is unable to sign a trade deal with the EU before the end of the year, it may have a knock-on effect on many businesses which could further raise unemployment.

However, despite fears around Brexit uncertainty, many property experts remain confident.

Mark Hayward, the Chief Executive of NAEA Propertymark, was quoted in Which? as saying that ‘while Brexit has added another layer of uncertainty to the housing market’ he nonetheless remains optimistic. Furthermore, despite fears over Brexit uncertainty, recent reports have shown ‘the highest number of sales agreed per estate agent branch in August for 13 years’.

However, it’s important to remember that these are only predictions. The ‘mini-boom’ in 2020, which could not have been predicted at the start of the year, shows how quickly things can change, so don’t panic just yet.

Get in touch

If you’re considering buying a home and want to act before the potential market uncertainty that 2021 may bring, we can help. Email enquire@london-money.co.uk or call us at (0207) 808 4120 to find out more.

Please note: Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.