What trends might we see in the 2021 housing market?

by | Tuesday 22nd Dec 2020 | Mortgage Insights

I’m usually reluctant to make predictions about the UK housing market – there are too many variables to make gazing into a crystal ball remotely reliable, and the proof of that is there for all to see in the past 12 months!

But understandably, people are more cautious about planning for their futures and one of the questions I get asked on a regular basis is What do you think will happen to house prices in the next year?

Although no one – and I do mean no one – can say with absolute certainty what might happen to the UK’s often mercurial housing market over the course of a long year, there are some things that I think we can be fairly confident about.

So, here’s my take on what to look out for in 2021 as the market hopefully continues its recovery from the pandemic-impacted last 12 months.

Last orders for the Stamp Duty holiday

It’s likely that the market will be busier between Christmas and March 31st than perhaps it might be for the remainder of the year with a last dash to the Stamp Duty finishing post.

Stamp Duty on purchases up to £500,000 was suspended by the Chancellor in the early summer as he looked to kickstart a market that had been brought to an emergency stop for three hard months of lockdown.

Essentially, it was a move that gave everyone buying a property worth more than £500,000 an extra £15,000 in their pocket. Not surprisingly, the market has been in overdrive for the last six months of this year as a result.

But the clock is now ticking loudly as we prepare for the final three months of the temporary Stamp Duty rules.

Twelve weeks is a tight timetable in which to get a purchase completed, but it’s not impossible – so expect buyer demand to remain buoyant, at least until the point where its simply not possible to get a purchase over the line.

In short, if you’re looking to buy and take advantage of the cash benefit the Stamp Duty holiday brings, or you’re thinking about moving and want to get the best possible price for your home, you need to act now.

Deal or no deal, Brexit will play its part

No one is in any doubt that regardless of what may happen in the longer term, Brexit will present challenges whether we have a deal with Europe or not (and at the time of writing this, Boris Johnson and EU president Ursula von der Leyen have extended the deadline for negotiations to be concluded).

The messages from both pro-Remain and pro-Leave have been markedly and obviously different overall, but in the Venn diagram of those opposing views there is at least mutual recognition of the fact that we face a tricky period adapting to whatever new arrangements are in place.

The impact on the economy is far from certain – these are waters not charted by the UK in nearly half a century and the political and economic is far different to the one in which we joined the Common Market, as it was then known, in the mid-Seventies.

Whatever the overall economic impact of Brexit, the only certainty is that we will see it reflected in the housing market.

Prices will continue to rise, but sales may fall

Residential housing plays a big part in the UK economy and so there’s a big economic incentive to keep it growing at a sustainable rate.

Most analysts are expecting house prices to continue to grow, though at a more subdued rate than is expected for the three-year period starting with 2022.

But some, like estate agents Knight Frank, also warn that in contrast to rising values, sales will actually fall by around 15 per cent in the next 12 months.

So, what does that mean in practical terms?

If Knight Frank are right – and as with all forecasts, that’s not a given – then assuming there are no further incentives from the Government at the end of the Stamp Duty holiday, people may well take a ‘wait-and-see’ approach.

People are likely to be understandably cautious about taking on more debt at a time when the economic waves of both the global pandemic and Brexit – good or bad – have yet to roll onto the beach.

Many may well choose to wait to see predictable trends in the financial and job markets and will have particular regard for the Bank of England’s strategy on interest rates and its effect on the mortgage market.

Speaking of which …

Interest rates – the market’s unknown quantity

Well, perhaps unknown isn’t quite the right phrase because we know what we’re dealing with right now: rates that are at an all-time low of 0.1%, which helps to fuel market confidence.

If we accept that taking them to zero or below would be not only unprecedented but also a move that would likely be triggered only in the direst of economic circumstances, then there is only one way for interest rates to travel.

The question, then, is when they start to move.

The Seven Capital report (see the link above) makes the point that the likelihood will be a continuing period when the current rate remains static. But the Bank of England has been consistent in its message that it’s aiming for an inflation target of 2%.

Maintaining an exceptionally low base rate doesn’t serve that ambition, so we can probably expect rates to begin to rise gradually again at some point – but probably not until we see sustained and sustainable economic growth over a period of months.

In the end, most residential housing forecasts predict house price growth – by anything between 3% and 8%, depending on which report you happen to read – and so in terms of the housing market, there is a sense of optimism around the place.

And of course, for those who have certainty of income (or saved wealth) and employment or believe they are financially secure enough to weather whatever the economic climate brings, planning for a move in 2021 makes a lot of sense.

Demand is high, rates are low, and the market is incentivised for at least the next three months. So, if you’re considering moving home in the next few months, come and talk to our friendly team to find out how we can make the dream happen.

Oportfolio Limited is an appointed representative of Primis Mortgage Network, a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority

Your property may be repossessed if you do not keep up repayments on your mortgage.

Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.

We're Here to Help

If you have any questions about UK mortgage news or or anything you’ve read then please get in touch. We’d love to hear from you.

As featured in

Understanding a Volatile Mortgage Market eBook

Download Our eBook

Join our mailing list and receive a link to our latest ebook, Understanding a Volatile Mortgage Market. 23 pages of practical insights to navigate the unpredictable mortgage landscape.

You Will Receive A Link To Your eBook Shortly!