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What to expect in the UK property market in 2021 and when to buy and sell

Tom Belger
·Finance and policy reporter
·8-min read
Properties in Devon as experts weigh up the future of the UK property market. Photo: Ben Birchall/PA
Properties in Devon as experts weigh up the future of the UK property market. Photo: Ben Birchall/PA

2020 has been a tumultuous year for Britain’s housing market, from the paralysis of the first lockdown to soaring sales and record prices since restrictions eased.

The scale of the rebound in sales has taken many experts by surprise, but there is significant uncertainty over how far it has to run next year.

Changing tastes, looming tax changes, a struggling economy, Brexit and COVID-19 disruption and vaccine breakthroughs are just a few of the major factors likely to impact the residential property sector.

Yahoo Finance UK takes a look at five of the many big questions on the minds of those considering whether or when to move in the year ahead.

Will a weak economy spark a housing crash?

Many economists have been predicting a housing market downturn since the pandemic first hit, leaving homeowners worse-off but potentially helping would-be buyers onto the ladder.

Wide-ranging policy decisions and pandemic-driven demand have helped the sector defy predictions of collapse in activity so far. Yet some spillover effects from the worst contraction in GDP in three centuries appear hard to avoid.

Last month the Office for Budget Responsibility (OBR) predicted a “significant rise” in already-mounting unemployment to 2.6 million in the second quarter of 2021. COVID-19 restrictions are widely expected to continue to hobble the economy until vaccines and mass testing eradicate the need for them, and Brexit disruption will hit certain sectors hard.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, wrote in a November note that the market would “slow significantly” next year, a view echoed by lender Halifax and most surveyors.

READ MORE: UK property sector braced for ‘sharp slowdown’ in 2021

Tombs expects prices to drop 2% in 2021. He noted signs demand had started to ebb already, and that the furlough scheme is due to end in March before the economy has fully recovered. “Rising labour market slack also will dampen wage growth and thus undermine affordability.”

Some forecasters have predicted a starker price crash. Aspiring buyers will need to weigh up potential savings during a downturn with any risk to their own incomes and lenders’ willingness to grant them a mortgage in 2021.

Yet the spillover into the housing market could be partially offset by both the reality and anticipation of mass vaccine rollout, and its impact on confidence. Andrew Montlake, managing director of mortgage broker Coreco, told Yahoo Finance UK earlier this year it could even prevent a sharp fall in transactions in 2021.

Mortgage holidays helped limit forced sales in 2020, buttressing prices. Zoopla research in late November predicted continued forbearance by lenders would have the same effect even as arrears rise in the first half of the year, despite blanket holidays ending.

WATCH: UK house prices hit a record high with growth all over the UK

Above all, a shortage of stock after 2020’s sales boom could limit price declines. “The scale of any downside for prices and turnover in 2021 is lower than in previous downturns,” according to Zoopla.

The recent boom has been driven particularly by the higher end of the market, which shows no signs of slowing. Edward Heaton, managing director of buying agents Heaton & Partners, said the wealthy still had “confidence in property as a long-term hold.” Higher earners’ jobs have also been hit less hard by lockdown curbs.

Aspiring buyers may find greater downward pressure on prices for cheaper homes as the economy continues to struggle, however.

How important is moving before the stamp duty and land tax deadlines?

The clock is ticking for buyers and sellers looking to complete before stamp duty and land tax holidays across the UK expire on 31 March.

Beating the deadline could save buyers up to £15,000 in England and Northern Ireland, with exact savings available via MoneySuperMarket’s calculator.

“Act sooner rather than later,” Paresh Raja, CEO of bridging lender Market Financial Solutions, told Yahoo Finance UK. “House prices have been rising in response, but there are still significant discounts on offer, for first-time buyers through to buy-to-let investors.”

Buyers need to weigh up potential savings against the risk of missing the deadline and the rising prices triggered by the tax cuts, which is widely expected to continue in January. Demand is also typically stronger in the spring.

Zoopla figures highlight the chances of completing a transaction by the end of March. Chart: Zoopla
Zoopla figures highlight the chances of completing a transaction by the end of March. Chart: Zoopla

Heaton expects a “whirlwind of activity” in the first quarter, while Zoopla predicts 100,000 additional sales versus the previous year. Zoopla warns half of January sales are unlikely to complete before the deadline, however.

Lender Halifax also pointed out earlier this month that the £2,500 tax savings on a £250,000 property were far outweighed by the average increases in prices seen since July.

How far will sales or prices fall after the deadline?

Experts have been warning activity and prices will take a hit once the deadline passes since the tax cuts were first announced in mid-2020.

Some buyers may be tempted to wait until after the deadline in the hope of a bargain. Zoopla has forecast a sales drop of as much as 30% on normal levels.

“There may be some sellers more motivated to accept offers if they have missed the boat and are keen to move on themselves,” said Jeremy Leaf, a north London estate agent.

Many buyers may lower their offers to account for higher tax bills, which could put pressure on prices. Leaf noted there may even be some new-build “bargains” in the run-up to the deadline, as developers look to urgently shift properties.

READ MORE: UK house prices rise at fastest pace since 2004

The sales downturn could also hit long before April as buyers realise they won’t meet the deadline, as the average transaction takes several months.

But with far fewer properties on the market beyond March, Zoopla expects buyers to have less bargaining power than they may hope. “Scope for price falls is limited,” according to analysts at the property listings website.

The UK chancellor and devolved administrations may also come under political pressure to extend the tax cuts, particularly if transaction delays mean thousands of buyers missing out.

WATCH: Why are house prices rising during a recession?

Will demand for more space and the city centre exodus last?

Some would-be buyers and sellers in urban and rural areas alike will be weighing up how long demand will last for homes that are larger, in less built-up areas, and have more outdoor space or home office potential.

“We anticipate that demand for homes to work in and work out of will continue, so those will generally continue to attract a premium,” said Leaf.

Zoopla analysts agree such demand “has further to run,” expecting changes in working patterns to continue beyond the pandemic, supporting sales throughout 2021.

READ MORE: Talk of London exodus ‘overblown’

Hannah advised anyone looking at mid-range suburban and higher-end rural homes to expect price rises to continue. “The larger the property, the sooner you should make your offer.”

He expects sustained price falls for inner city homes and properties without gardens in 2021 as supply outstrips demand. For those set on city centre living, or looking at a long-term investment and unfussed by short-term rental potential, “2021 could be a good time to buy.”

Not everyone is convinced pandemic trends will continue, however. Tombs expects both enthusiasm for working from home and the premium on outdoor space to wane. He also expects households to increasingly focus their spending on services when vaccines arrive, potentially cutting into their deposits for property moves.

WATCH: UK home sales levels hit record after lockdown

Will mortgage access get easier or rates get cheaper?

Some aspiring buyers may be tempted to wait and see if mortgage rates fall in 2021. The Bank of England has been considering negative rates, but markets are not confident it will happen and Raja said buyers should not wait either way. “Interest rates are already at a historic low of 0.1%, and it is not likely that banks will slash their existing rates further.”

Tombs added that past crises suggested mortgage rates, which have edged higher amid rising unemployment, are likely to remain at their current level. Rising arrears could increase lender caution further.

He also said buyers could locked out of the market by a “dearth of high loan-to-value loans.” Zoopla does expect banks to offer more such low-deposit products in the first quarter of 2021, but not at the scale and competitive pricing on offer in recent years.

With events so unpredictable in 2020, analysts are wary about crystal-gazing, however. As Heaton said: “What the future holds for the property market is frankly anybody’s guess.”

WATCH: What do stamp duty cuts mean for buyers and house prices?