What Will Happen to Property Prices this Year?

Mortgages
Given that we are living with a pandemic which closed the housing market completely for a couple of months last year, it is remarkable that property prices hit an all-time high in December 2020. According to Nationwide building society, prices rose to a six-year high of 7.3 per cent during the year, fuelled by pent-up demand from those who put moves on hold for years during the Brexit debacle, the need for more space as a result of lockdown, and the stamp duty holiday. Rural properties and detached houses with gardens were in particular demand, while the prices of urban flats did not perform as well as buyers no longer needed to be as close to the office and wanted more space.

Predicting what will happen to house prices this year is tricky as there are so many unknowns. The stamp duty holiday has helped fuel the surge in values but is due to come to an end on 31 March. We don’t know whether prices will plunge after that date, as some have predicted. It is unlikely that the Chancellor will extend the stamp duty holiday beyond the scheduled end date, despite calls from some in the property industry to do so. No extension will inevitably mean many will not complete before the deadline. The latest lockdown will not help, slowing things down as property professionals work from home once again.

There is also the forthcoming Budget to consider. It has been suggested that the Chancellor will hike capital gains tax on property to bring it into line with income tax, replenishing coffers badly battered by the pandemic. If he did so, there could be a fall-off in the number of properties sold by the likes of landlords, who have no desire to pay the higher level of tax. However, there is another argument that it is far too early for tax hikes, with the priority being to get the pandemic under control before a review of taxation perhaps later in the autumn.

If there is a rise in unemployment once the furlough scheme and other government support for businesses comes to an end, this will also impact the housing market. If people lose their jobs, they won’t be in a position to buy property and take on bigger mortgages, and confidence will be dented. This is likely to lead to a drop in demand and could mean prices fall accordingly.

Price predictions from lenders and estate agencies vary considerably, with Halifax expecting a fall in prices of between 2 and 5 per cent, while the Office for Budget Responsibility, the Treasury’s independent forecaster, predicts an 8 per cent drop in values. Taking a more positive view, property portal Rightmove expects prices to rise by 4 per cent, while estate agency Savills is opting for flat growth. Zoopla expects a small rise. While forecasters can’t agree, a property crash similar to that of 2008 seems highly unlikely. The market is very different, with lenders far more cautious than they were then and borrowers not over-stretching themselves, taking on mortgages they can’t afford.

Even if prices did fall, not everyone would be upset about it. Those first-time buyers keen to get on the housing ladder would welcome a drop in values, as would those homeowners hoping to move up the ladder to a bigger property. With mortgages so competitively priced, and likely to remain so for the foreseeable future, it is a good time to take on debt. With lenders also returning to high loan-to-value products, there is more choice for first-time buyers, at better rates.

If you are planning on moving this year, it is important to seek advice from a whole-of-market broker such as AWS as soon as possible, ideally before you start looking at properties. We can give you an idea as to how much you could borrow, so you don’t waste your time or anyone else’s. With so much demand for property, agents will want to see evidence that you are serious and have funds in place ready to move when you find the right property. Get in touch to find out more.
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