Reading Time: 8 minutes

The future of the UK property market in post-Brexit 2021

  • UK property prices could decline by up to 5% in 2021 due to the impact of the COVID-19 crisis
  • Calls for an extension to the stamp duty holiday continue to be heard
  • Lenders resume high loan-to-value (LTV) options, offering 5% and 10% mortgage deposits
  • Brexit has created a dilemma for second homeowners

With several industry experts and real estate professionals calling on an extension to the stamp duty holiday, banks resuming low deposit mortgages and interest rates higher than they were pre-pandemic, activity in the property market remains busy into 2021.

Even after Brexit, the industry remains far from quiet, contrary to predictions from the Bank of England (BoE), which warned housing prices could decline by up 35% over the next three years after the UK departs the EU.

Although the coronavirus pandemic triggered one of the most economically turbulent times in recent history, UK property prices stormed to record highs in 2020, with the average home costing GBP 253,374 in December – an increase of over GBP 14,000 on the previous year.

While property prices in London suffered as people sought out properties outside of cities with larger outdoor spaces, recent data has shown that prices across the capital have increased by 3.2% since the UK voted Leave in 2016.

Meanwhile, housing prices across the UK have jumped up by 14.1% since the June 2016 vote, with the West Midlands, East Midlands and Wales seeing turbocharged growth.

However, with Chancellor Rishi Sunak’s stamp duty holiday due to expire, unemployment levels rising, and COVID vaccine rollouts being accelerated, the housing market activity appears to be cooling off.

Uncertainty surrounding an extension to the stamp duty holiday, how long the pandemic will last, the UK’s post-Brexit future and the efficacy of vaccines continues, has caused many to speculate what’s in store for the property market in 2021.

UK Housing Prices

UK government could restrict housing market activity amid Covid crisis

Despite coronavirus cases in the UK being stubbornly high, the UK government has allowed the housing market to remain open during the country’s third lockdown.

While strict rules have been put in place to reduce the risk of transmission, people can continue to move homes, sell and purchase property under the new lockdown rules.

The government has encouraged viewings to be conducted virtually unless the buyer is serious about purchasing the property in question. If physical viewings are taking place, sellers should encourage prospective buyers to wear face coverings and wash their hands’ when entering the property and follow social distancing measures where possible.

Real estate agents and removal firms will also remain open during this lockdown, to facilitate moves amid the Covid crisis.

However, several people, including Labour Leader, Sir Keir Starmer, has criticised the government for its decision to keep the housing market open, given the overwhelming pressure on the NHS.

Sir Keir urged UK Prime Minister Boris Johnson to consider tightening restrictions further to pull the reins in on the virus, which has spread across Britain like wildfire.

Although the number of daily infections has fallen below 50,000 for the third consecutive day, the number of coronavirus fatalities continues to rise. On January 13th the UK recorded 1,564 coronavirus deaths – the highest daily rate since the pandemic began in March.

At the time of writing, almost 1 in every 660 people have died from COVID in the UK and with some NHS services nearing collapse; the housing ministry is considering closing the property market.

According to a Property Industry Eye survey of approximately 3,400 readers, 62% believed that real estate agents should close their doors and ban physical viewings and meetings during the current lockdown due to the risk these new mutant stains pose to public health.

Shortly after Keir Starmer’s statement, Prime Minister Boris Johnson made a televised address to the nation, stating: “It may become necessary to pause all home moves locally or nationally for a short period to manage the spread of coronavirus.”

For many prospective homebuyers and sellers, shutting down the housing market would be bad news, especially since the stamp duty holiday deadline is fast approaching.

Chancellor continues to mull over whether to extend the stamp duty holiday

Housing market activity and rising property prices have been supported by Chancellor Rishi Sunak’s stamp duty holiday, which is scheduled to expire on March 31st.

Many industry professionals believe the termination of the stamp duty holiday, among other factors such as Brexit and rising unemployment levels, will weigh heavily on housing market activity, with house prices predicted to decline by 5% in 2021.

According to new research carried out by London estate agent chain, Hamptons International, the government could unlock an additional 100,000 property transactions if they extended the tax break until the end of 2021.

Hamptons International noted that the housing market’s growth would help shore up the broader economy, which has suffered the sharpest peacetime slump in nearly a century due to the pandemic.

Aneisha Beveridge, Head of Research at Hamptons, said that extending the stamp duty break would significantly benefit first-time buyers and second-steppers in the UK’s most expensive regions.

The stamp duty holiday provides buyers with the opportunity to save up to GBP 15,000 on a property, which triggered a wave of property purchases last year as homebuyers tried to take advantage of the relief.

With property prices expected to fall in the coming months as the pandemic’s impact hits the market and schemes wind down, a petition calling for the government to extend the stamp duty deadline by six months has attracted more than 80,000 signatures.

The Telegraph has also launched a Stamp Out The Duty campaign to support buyers at risk of losing out on their housing transactions due to the third lockdown.

Pantheon Macroeconomics economist, Samuel Tombs warned the housing market “will fall into a deep slumber” following the stamp duty holiday’s conclusion.

Although the Treasury is believed to be considering extending the tax break, many buyers are concerned about their transactions falling through. As a result, more than a third of prospective buyers have said they would terminate their sale if they miss the deadline.

Presently, it is unclear what kind of impact this would have on the property market, but it’s likely to be negative.

However, it’s not all bad news as the rollout of COVID vaccines has increased mortgage availability and prompted banks to reintroduce 10% deposits.

Holiday let mortgages are being reintroduced in the UK amid easing of lockdown restrictions

Mortgage availability increases and mortgage deposits decrease

According to the financial information company, Moneyfacts Group, mortgage availability had risen to its highest level since April 2020, which was when the pandemic tightened its grip on the UK.

Lenders are also reintroducing high loan-to-value (LTV) mortgage deals, meaning more homebuyers will be able to secure a property with a 10% or 5% mortgage deposit.

HSBC becomes the latest lender to reinstate 90% LTVs in 2021, joining Lloyds Bank, Barclays, Natwest and Halifax – a boost for first-time buyers and other second-steppers with low deposit requirements.

While interest rates remain much higher than last year, several experts predict these will decline over the coming months as more Britons receive the COVID vaccine.

With more lending facilities offering high LTVs, homebuyers with low equity or deposits will have access to more options than they did last year.

Brexit Referendum

Brexit induces a dilemma for second homeowners

The UK’s covid crisis and Brexit have created chaos for owners of second homes in the EU, with thousands of Brits having to adjust to new rules now that freedom of movement has ended for Britons travelling to Europe.

According to real estate company Taylor Wimpey Espana, the demand for property in Spain soared during the first week of January, with many Britons keen to escape the third lockdown and travel restrictions.

But with travel to Spain more complicated post-Brexit, many Britons seem to be setting their sights on homes in coastal regions of the UK due to the “nightmare” of owning property abroad.

However, the rise in second homeowners and tourists in the UK is causing dilemmas for local residents. Welsh Cabinet member Cefin Campbell said communities in Carmarthenshire had been left “defenceless” against the rise of second homes, which he claims has priced out locals.

Wales has now raised land transaction tax for second homes in Wales, which has triggered chaos in markets and pressure could increase further into the second half of the year.