Lenders believe the property market will suffer in early 2021
The massive increase in house prices in 2020 would be the preamble to a slowdown in the market next year.
The UK property market could cool down rapidly in 2021, according to forecasters, when the stamp duty holiday ends and unemployment rises.
According to the construction company Nationwide, home prices rose to a six-year high in late 2020, increasing 7.3% on the year. Still, the mortgage lender expects the market to slow “dramatically” in the next few months.
Lender Halifax expects a 2-5% drop in home prices next year. Simultaneously, the Office of Budget Responsibility, the Treasury’s independent forecaster, is more pessimistic, predicting a price drop of 8% in 2021.
The most optimistic forecast comes from the property listing website Rightmove, which expects prices to rise 4% in 2021. But Savills researchers expect the market to stabilize in all parts of the UK next year before accelerating again in 2022.
Most other forecasters, including Zoopla, Knight Frank, and Chestertons, suggest that average prices will increase between 1% and 1.5%, indicating a slowdown compared to 2020.
After the first national lockdown in March, the pent-up demand plus the temporary stamp duty holiday that began in June fueled a market recovery that surprised many observers. In September, the market was moving at the fastest pace since 2016.
In December, Nationwide said prices were a remarkable 5.3% above the level in March, when the Covid-19 pandemic hit the UK.
Robert Gardner, a chief economist at Nationwide, said: “The resilience seen in recent quarters seemed unlikely at the start of the pandemic. In fact, housing market activity almost came to a complete halt during the first lockdown as the overall economy contracted by an unprecedented 26%.”
But the stamp duty land tax (SDLT) cuts, which saved buyers in England and Northern Ireland £ 15,000 on a £ 500,000 house, will expire on March 31, 2021. A month later, the planned government licensing should end.
The first quarter of 2021 will be essential for the UK housing market.
Rightmove says there is a backlog of 650,000 properties changing hands, which is expected to keep the market busy in the first quarter of next year.
Separate stamp duty exemptions in Scotland and Wales were less generous, reducing the sales tax by up to £ 250,000. They are also scheduled to finish at the end of March, with many expecting the market to sink soon after.
“After the SDLT holidays conclude in late March, we anticipate a slowdown in sales completion as the momentum to move among buyers motivated by stamp duty savings dissipates,” said Richard Donnell of the Zoopla listing website. He expects transactions to run 20-30% below normal levels once the stamp duty rebate decreases, leaving prices at the end of the year only 1% higher than at the beginning.
Real estate firm Knight Frank has a similar opinion and expects housing price inflation to remain relatively subdued over the next few years, with gains of 1% in 2021 and 3% in 2022.
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