UK house prices and property market set for a strong 2021

  • UK house prices rose to a six-year high in 2020, fuelled by Rishi Sunak’s stamp duty holiday
  • Activity in the UK’s property market to remain strong for 2021
  • UK government to replace existing Help to Buy scheme in April 2021
  • Several leading banks resume 10% mortgage deposits in 2021
  • Real estate agents and removal companies remain open to support you with your move during the new lockdown

Economists had previously predicted UK housing prices to decline significantly in 2020 due to the pandemic’s impact, but property values defied the odds and held up firmly.

It seems that months of lockdowns and coronavirus restrictions caused homebuyers to rethink their priorities as many lenders reported a notable uptick in sales for larger properties away from cities and with significant outdoor space last year.

According to the property website, Rightmove, property transaction gained steam during the last half of 2020, with house prices surging by 7.3% in the year to hit a six-year high.

Even during the festive season, when activity in the property market tends to slow down, strong demand for new homes drove house prices higher.

Nationwide’s house price index revealed that the UK’s average housing prices increased by 0.2% month-on-month in December, while property prices were 2.6% higher in Q4 than the preceding quarter.

In December, housing prices were also 6% higher than in the same month the previous year, from GBP 215,282 in 2019 to GBP 230,920 in 2020.

While the first national lockdown, which took place in March dented housing market activity, several listed firms said this led to “pent-up demand”once the government lifted COVID-19 restrictions.

Although housing prices are steadying into 2021, most house price growth was registered after the first lockdown, with property prices finishing 5.3% higher than levels seen in March when the UK government imposed the most stringent restrictions.

Nationwide’s Chief Economist, Robert Gardner, noted that “even as the wider economic recovery lost momentum and the prospect of further lockdowns weighed on businesses, housing market conditions have remained robust in recent months.”

Chancellor Rishi Sunak’s stamp duty holiday is also being cited as a prime driver of housing price growth and increased activity in the UK’s property market.

House hunter priorities changing

Stamp duty holiday triggered property price boom

To support economic recovery in the UK, Chancellor of Exchequer Rishi Sunak raised the stamp duty threshold on UK properties worth GBP 500,000 or less until March 31st 2021.

The stamp duty holiday deadline appears to have prompted many homebuyers to move plans to purchase property forward to take advantage of the tax break.

Housing prices surged by 2% in August alone, which was the month that followed the Chancellor’s announcement, which offered homebuyers the potential to save up to GBP 15,000 on property purchases.

However, with lenders now inundated with housing applications, many have made calls for the Treasury to extend the stamp duty holiday’s deadline to prevent buyers from being disappointed.

Mr Sunak is yet to decide on the matter; however, given the impact, the third national lockdown in England will have on the economy, the Chancellor may reconsider the stamp duty deadline and provide fuel for a vital part of the UK economy.

What areas have witnessed the most robust price growth?

There has been a mass exodus of homebuyers seeking a life outside of large cities over the last year, which saw London take a notable hit in price growth.

According to new data published by property website, OpenBrix, the pandemic has increased demand for detached homes, with people now seeking housing with more open space.

OpenBrix found that the value of detached properties soared by 6.8% in the year to December, while the price of semi-detached properties surged by 5.4%.

However, with buyers seeking larger spaces, the number of flat transactions decreased last year, appreciating by an annualised rate of just 2.3%.

Of all the UK, Yorkshire and Humber regions, the South West and the North West saw the largest increases in property prices for detached homes. And while the pandemic continues to cast a shadow over the UK economy, housing price growth is expected to stay strong through 2021.

Will UK housing prices flourish in 2021

Expectations for the UK property market in 2021

Housing experts have said that there is reason for optimism heading into 2021 and expect house price growth to remain strong until the stamp duty holiday is wound down at the end of March 2021.

However, with lenders reporting unprecedented demand, this could trigger long delays for buyers trying to obtain a mortgage.

According to a recent analysis from top-rated online mortgage broker Trussle, mortgage submissions leapt higher by 48% in the seven months leading to November in 2020 compared to the same period the previous year.

Trussle notes that in December it took 19 days for real estate agents and other lenders to approve mortgage applications, more than 110% higher than the time it took in January of the same year.

With the stamp duty holiday scheduled to expire on March 31st, buyers are rushing to complete housing transactions, and as a result, lenders have a backlog of applications.

That being said, the stamp duty holiday may have lost its appeal to some buyers, as the tax break will now be outweighed by the average increase in property prices, which is near six-year highs.

However, this is not necessarily a negative for home sellers as lower prices could attract some buyers and investors, especially given that prices will likely rise over the coming years.

Recent data from Barrows and Forrester shows that property in the City of London declined by -12% due to the pandemic.

While property in the capital remains expensive overall, those who can afford to purchase homes in the City will make a notable investment as experts expect London to experience a mini-housing boom once normality returns to the UK.

That said, several real estate agents have warned home sellers to price their properties “realistically” if they want to avoid damaging purchase interest, especially given that restricted viewings have made prospective buyers sceptical to asking prices.

Estate agent Lisney said: “For vendors, properties quoting realistic asking prices from the start of the sales process will garner the greatest attention.”

Several banks, including HSBC, NatWest, Halifax and Coventry Building Society, have also resumed offering 10% mortgage deposits to buyers in 2021, which should boost property market activity.

Meanwhile, first-time buyers will be able to secure a 5% deposit on mortgages from April 2021 with the UK governments new Help to Buy Scheme launching.


UK government to replace existing Help to Buy scheme

The British government is introducing a new Help to Buy Scheme in April for first-time buyers, which is now open to eligible applicants.

Under the existing scheme, first-time buyers receive a 25% boost on all savings made in their Help to Buy ISA, capped at GBP 3,000. However, under the new scheme, the government will lend you up to 20% (40% in London) of the full purchase of a newly built home providing you can contribute a minimum deposit of 5% upfront.

The percentage borrowed will be determined by the market value of the property you are purchasing, and you will not have to pay interest on the loan for the first five years.

However, the government is also placing a cap on the cost of homes under the new scheme to prevent it from being exploited by wealthy first-time buyers. For more information on the latest Help to Buy scheme, visit the GOV.UK website.

The Bank of England (BoE) noted that there had been a notable increase in household savings in 2020, which has led many industry experts to believe there will be another release of pent-up demand following England’s in a third lockdown.

Can I move house during the UK lockdown?

Under the new lockdown rules, UK Prime Minister Boris Johnson said people can continue with planned moves but must take the necessary precautions to ensure it is done safely.

If you are moving house and need support with moving furniture and other household items, the government advise that you not ask anyone outside your household or support bubble for help unless necessary.

Real estate agents and removal companies will also remain open during the lockdown and will be able to support you with your move or property search if it’s in your plans to find a new home.

You should also complete all viewings virtually unless you are seriously considering purchasing a property to reduce transmission risk. If you physically view a property, the UK government advise you to wear a face mask and follow social distancing rules.

If you are selling your home, encourage prospective buyers to wear a mask and disinfect all door handles before and after each viewing.