Will the UK house price boom continue in 2021?

Will the UK house price boom continue in 2021? 

Despite the Covid-19 pandemic UK house prices were on the rise in 2020, can it continue into 2021? 

2020 has proved to be the best year for the UK housing market – in terms of activity at least – in a long time. House prices hit new record highs and saw their strongest growth for years, as measured by any house-price index you cared to use, from the mortgage-tracking indices of Halifax (up 7.6% in the year to November) and Nationwide (up 6.5%), to the detailed transaction data of the Office for National Statistics (up 5.4% to October), or even the rather more nebulous “asking-price” data from Rightmove (up 6.6% to December).  

The boom is widespread, with transactions hitting their highest level in five years in October, according to HMRC. 

 

The factors behind the rising house prices 

House moves were delayed by the outbreak, which led to transactions piling up towards the middle of the year. And the stamp-duty holiday introduced by the chancellor, Rishi Sunak, has likely brought forward sales from the future as people rush to beat the 31st March deadline, although there are talks of a possible extension.  

But what the past year should really demonstrate once and for all, to anyone who was ever in any doubt, is that the main driver of house prices is the availability of credit. Despite the economic slump and risks of unemployment, interest rates have remained low and securing a mortgage has largely remained feasible for most people who are able to buy in the first place. 

 

What about 2021? 

The experience of previous stamp-duty holidays suggests that sales will slow once it ends (assuming that it is not extended, of course). Working from home is likely to be a permanent feature of many employees’ lives, but others may find that commuting is still a necessity – or at least more important than it might have seemed during lockdown.  

If you are hoping house prices will become drastically cheaper, we have some bad news – it is hard to see where a crash would emerge from. A surge in interest rates is not on the cards and assuming that government assistance continues to cushion the worst of the unemployment risk, and that the economy recovers, then we will not see the scale of job losses that might cause widespread forced selling either. For now, it seems likely that house prices in 2021 will range from flat (if they take a breather) to potentially rather higher (if the economy recovers faster than expected). 

 

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Sebastian Petersson
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