It’s no secret that the housing market has endured a torrid time in recent years. The Brexit effect has seen prices stagnate since 2016 while 2020 has been a challenging year for many people.
But how will all of this translate into house price movement for the year ahead? Is the market likely to come surging back or do experts anticipate a total collapse?
Here’s a closer look at the factors which could play a part, and the overall prediction.
Stamp Duty Break
In 2020, the government announced a stamp duty holiday, applicable to house purchases up to £500,000. This move will cost the Treasury an eye-watering £1.3 billion, but it was considered to be a necessary expense to try and encourage movement in the sluggish market.
The move could save as much as £15,000 on a property worth £500,000, so the benefit is substantial. Not everyone benefits from the policy; homeowners in Scotland and Wales pay taxes set by their own devolved governments. First-time buyers would also gain limited value from the announcement as for them, properties worth up to £300,000 are exempt from stamp duty.
Despite the caveats, the response to the stamp duty break has been positive, and the end of 2020 has been a busy time for the housing market. The stamp duty holiday is due to end in March 2021, and it’s not yet known whether the government will consider an extension. If it doesn’t, there could be a sharp cliff-edge as cautious buyers put a hold on making a purchase, in the absence of any financial help.
It’s impossible to predict house prices for 2021 without mentioning the Brexit effect. The last four years have been difficult for the market, with the uncertainty of what the future will look like on both sides of the Channel.
It’s looking increasingly as if a No-Deal will be the outcome of talks, and this could be devastating for house prices. The general consensus is that 5-7% could be wiped off the price of houses if no trade deal is struck.
The global economy has nosedived in 2020, with many countries forced into one of the most significant recessions they’ve ever faced. The UK is no exception, and the government has warned that there will be tough decisions to make, especially as they withdraw additional financial support from those who have struggled the most.
In any recession, house prices suffer. Looking back to 2007/2008, another difficult financial period, house prices dropped by around 20%. Unemployment simultaneously rocketed by 60%, and there are fears that the same could happen again now. A million jobs were lost in 2020, and it’s forecast that a further million will also be axed in the coming months. That leaves a lot of people facing economic uncertainty, and a market teetering on the brink.
What Does All This Mean?
Of course, it’s impossible to be entirely sure about the future of house prices, and right now, there’s even more volatility than usual. With many huge factors playing a part, making an accurate prediction is a challenge. If you hold onto a property for long enough, it will always increase in value eventually; since 1982, prices have risen by around 900%. However, in the short term, that may not be the case. Experts are cautiously predicting very modest growth in house prices during 2021 with better performances in the medium term, as prices start to increase between 2022-2024.
It’s worth mentioning that it’s impossible to rule out a complete crash in 2021. However, the market has shown surprising resilience in 2020, so a crash is not believed to be the most likely outcome.