What will the housing market look like in 2021?
A report from Royal Institution of Chartered Surveyors into house buying is bullish in the short term, but bearish about the future. House buying continues to grow, but a slowdown could be due in 2021. Even so, the impact on prices could be minimal.
According the study, the stamp duty holiday continues to lift the market. Buyers have capitalised on the Chancellor’s July decision to cut stamp duty on all purchases under £500,000. However, there are signs that demand may be running out of steam.
Demand was high in 2020
Enquiries from new buyers increased in November 2020, and sales have risen across most of the UK. Wales and Northern Ireland have seen particularly strong growth. However, surveyors in the West Midlands, East Midlands and Scotland have started to report a flatter trend in agreed sales.
The future of house prices has been open to much debate throughout this pandemic. Earlier in May JLL predicted prices would fall by 8% during 2020 thanks to the pandemic. That was before the Chancellor’s stamp duty holiday. Not only has it kept prices high it has seen them rise.
Since the summer, prices have surged. Data from the Nationwide Building Society shows UK house prices are 6.5% higher than a year ago. It’s the steepest rise for nearly six years and some of that is down to the pandemic. With more of us stuck at home, people want an outdoor space and room to work at home. Summer prices also experienced from pent-up demand after the first lockdown.
House prices may fall in 2021
The question is: what happens in 2021? Reports have varied from a slow tail off to a 50% drop in house prices by the second half of the year. This latest survey leans towards the former. However, in the age of COVID 19, making predictions can be difficult.
One thing is clear. Buyers are moving quickly to take advantage of the holiday. However, it comes with a deadline of 31st March 2021. Once that government support is gone, most experts expect demand to fall away. Even so, the report expects prices to remain relatively high.
Government support has created something of an artificial boom in house buying. The underlying conditions are poor. According to recent growth figures, the UK economy is 8% smaller than before the pandemic. Thousands of people have been made redundant. Many others have seen their hours or pay reduced.
Although experts predict a recovery as the vaccine takes hold, COVID 19 will leave a mark which will last for years. However, while demand looks likely to slip, experts feel prices will remain high. 2021 could see a growing gap between what people can afford and the level of the market.
There is also no guarantee that the Chancellor won’t extend the stamp duty holiday. There is already a petition demanding just that. Support should continue, says the petition, to help new buyers afford a house and to stabilise the market.
The message from the report is that, even with demand softening, house prices will continue to be strong. Affordability will become tougher. Those making a buy to let purchase may find their finances stretched further and it may be worthwhile speaking to an accountant for specialist property advice on the best way to structure the investment.