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Predicting house price movements is a bit like trying to predict the future using star clusters. Yet it is important for prospective buyers, sellers and investors to listen to what leading analysts and market experts are saying about the UK housing market in 2021. Whilst the uncertainty caused by Brexit has now lifted from the economy (temporarily at least), COVID-19 continues to cast a large shadow. In particular, will house prices keep rising once the UK government’s stamp duty holiday ends (as currently scheduled) in March? How might changes in the wider economy – e.g. rising unemployment – affect mortgage rates and house prices?
In this article, our mortgage advisers offer their reflections on these important questions for the months ahead. We hope you find value in the content here. Please contact our team here at Cedar House for more information or to access personalised financial advice:
020 8366 4400 or enquiries@cedarhfs.co.uk
How 2020 has set the stage for housing
Despite the huge economic disruption caused by COVID-19 and repeated lockdowns in the UK, the housing market continued to climb in 2020. Much of this was attributed to the Chancellor’s decision to introduce a stamp duty holiday in July, in an attempt to kick-start the property market after months of stagnation under heavy social restrictions. These measures largely worked, with five indexes showing that the average home rose £15,000 in value in 2020. House sales were up 8% in October compared to 2019, and by the end of the year the average UK house price stood higher at £253,374.
What might happen in 2021?
All of this occurred despite the uncertainty of the ongoing Brexit negotiations and the battle with COVID-19. Yet, unfortunately, it reveals little about how events might transpire over the next 12 months. Market commentators and analysis, however, seem to be broadly pessimistic about the outlook. Halifax, for instance, has forecasted a 2-5% overall fall in house prices in 2021, whilst the Office for Budget Responsibility (OBR) has been more gloomy with its prediction of 8% fall. Some such as Rightmove, however, anticipate a 4% rise – but this is perhaps the most positive forecast near the time of writing.
There is still much that is not known about the virus, consumer behaviour and UK government policy which could affect house prices in 2021. The stability of the UK-EU trade agreement is yet to be tested, and it is still not certain how successful the COVID-19 vaccination schemes will be. There is speculation that the Chancellor may extend the stamp duty holiday beyond March, and it is not clear how employees and businesses will react once (if) lockdown measures are lifted.
Another big question surrounds UK unemployment in 2021. Furlough and other financial support measures cannot last forever, and joblessness is likely to rise once these start to lift (scheduled for April 2021). This could lead to a fall in house prices as unemployed people with mortgages cannot make repayments, and so must sell quickly. However, the pattern since March 2020 shows that the UK government is keen to avoid a boom in unemployment. Policy cushioning (and continuing compliance from the banking sector with “mortgage holidays”) is likely to prevent mass-defaulting in 2021, which could avoid large numbers of rapid property sales dragging the market down.
What about mortgage rates in 2021?
Last year saw some dramatic changes in the mortgage market. In March 2020, for instance, 779 deals were available to first-time buyers with a 10% deposit. Come October, however, this had gone down to 51 and 5% mortgages had virtually disappeared as lenders sought to mitigate the default risk amidst the pandemic. By November, however, banks and building societies started to re-introduce many of their 10% deals – albeit with higher rates.
95% mortgages are unlikely to return to the market early in 2021 – particularly as big questions remain over whether the UK’s vaccination programme. However, rates on 90% mortgages may fall as competition increases between lenders offering more deals. The Bank of England (BoE), moreover, could re-evaluate its mortgage rules capping banks’ mortgage offers at 4.5x the applicant’s annual earnings. An increase in this cap could enable first-time buyers to borrow more and thus get onto the housing ladder.
One feature of 2020 was that mortgage applicants with a higher loan-to-value (LTV) ratio – e.g. 30% or more – still enjoyed a wide range of attractive offers from lenders. Since the BoE seems unlikely to increase the 0.10% base rate any time soon, it is possible that people in this position could still find a fixed-rate deal near a 1% rate in 2021. A good mortgage adviser will be able to help you survey the full range of options on the market and find a strong deal for your needs.
Conclusion
If you’re looking to buy or sell a property in 2021, there are still many uncertainties to factor into your strategy. Getting professional advice can be a great way to ensure that you integrate your property and mortgage plans effectively into your wider financial goals and strategy – avoiding costly mistakes which you may not immediately notice.
Interested in discussing your financial plan with an experienced financial adviser? Get in touch today to discuss your financial plan with a member of our team here at Cedar House via a free, no-commitment consultation:
020 8366 4400 or enquiries@cedarhfs.co.uk.