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Revision to 2021 UK House Price Forecast

Update to UK House Price Forecast for 2021

Unexpected house price increases has made agencies revise their predictions for 2021

The Coronavirus pandemic had cast a shadow over the UK's property market, with many predicting a gloomy 2021. After the forecast was released, the government took positive action which has impacted the economic outlook as well as the property market forecast. What were those actions, and why have they impacted the UK property market?

House Prices Rose in 2020, but 2021 Predictions were Bleak

percentage change to house prices in 2020

In 2020 house prices increased by 7.5% with the highest increase in the North West of England. Industry experts were not quite so optimistic about the property market outlook in 2021, with many predicting falls.

It had been predicted that house prices could fall sharply, due to rising unemployment and the end of the stamp duty holiday scheme. Both Halifax and the Office for Budget Responsibility predicted falls of between 2-5% and 8% respectively.

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Since that prediction, much has changed. The government has announced the extension of the furlough scheme until the 30th of September, providing a safety net for jobs and businesses that are struggling in the current climate. The stamp duty holiday has been extended until the end of June in England and Northern Ireland, incentivising those considering buying property to move ahead and allowing those already in the process of buying to take advantage of savings. This extension has provided a much-needed stimulus to the market, read more about the stamp duty holiday pros and cons. Other factors that are expected to impact the economy and indirectly the housing market include the UK’s efficient roll out of its vaccination programme, which will then see a relaxation of social distancing measures.

Positive house price growth predicted for 2021

One agency that has upgraded its predictions following the government announcement is Savills. The company had previously predicted that property prices would remain flat across the UK in 2021, before picking up again in 2022. They have now revised their house price growth forecast and expect prices to grow by 4% this year. Knight Frank has also upgraded their house price growth prediction from 0 per cent growth to 5%.

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Another update to predictions is where people will choose to live. Throughout lockdown, many in the property industry were suggesting that city dwellers would retreat to the countryside seeking larger houses, open spaces for outdoor exercise and private gardens, and that this would continue beyond the pandemic following a shift in working patterns and office culture. As social distancing measures ease, people will be able to make use of communal outdoor spaces and public parks again, and the requirement for private outdoor space will subside. Companies such as Savills are now suggesting that people will return to the city, favouring convenience and connectivity. This would be especially true amongst retail and hospitality workers who were unable to work from home during the pandemic.

Affordability will still be key. Research by Savills suggests that markets furthest away from London will perform the best and are expected to grow by 21.1% over the next five years.

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Opportunities such as these below market value apartments in Salford are attractive because they are affordable with one-bedroom apartments starting from £163,548, while being minutes away from the UK’s third largest city economy. Conversely, Knight Frank has revised down their forecast for the prime central London property market due to international travel restrictions and the extra 2% stamp duty surcharge for international buyers that comes into effect in April 2021.

The government has intervened to provide short-term stimulation to the housing market in the face of economic uncertainty. There are longer-term factors that underline the strength of the UK housing market though. An imbalance of housing supply vs. demand has caused house prices to increase in the past and will continue to do so until the shortage is addressed. Population growth and changes in household composition (there are now more single households and families no longer live as a unit with grandparents etc.) have also contributed to pressure on the housing market. Learn more about the fundamentals of the UK buy-to-let market to learn more about the sector and discover where in the UK housing is still accessible.

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