UK property: House prices hit record high at end of 2020 but what will happen in 2021?

According to the latest report produced by the Halifax, one of the UK’s biggest mortgage lenders, there was a discernible slowdown in house price growth between November and December, suggesting that, as we get closer to the end of the current stamp duty holiday, buyer demand is beginning to taper off, along with a cooling of price growth. As Russell Galley, Managing Director of Halifax explains, the run of continuous gains over the past six months came to a halt in December, with the monthly rise of 0.2 per cent being “the lowest seen during this period and significantly down on the one percent increase in November”.

As a consequence, the average UK property price hardly moved over the course of the month, although as Russell points out, values “still reached a fresh record of £253,374″.

Russell continues: “2020 was a tale of two distinct halves for the housing market.

“Following a strong start, the first half was dominated by the restrictions on movement due to COVID-19, and prices were subsequently down 0.5 percent at mid-year as the market effectively ground to a halt.

“However, when the market reopened, prices soared as a result of pent-up demand, a desire amongst buyers for greater space and the time-limited incentive of the stamp duty holiday.”

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“All of this has left average prices sitting some six percent higher at the end of 2020 when compared to December 2019, a notably strong performance given the anticipated impact of the pandemic earlier in the year.

“Whilst the annual rate of house price inflation did fall compared to November, when it was 7.6 percent, to stand at its lowest level since August, it should be noted that this also reflects a particularly strong period for house prices towards the end of 2019 as political uncertainty at that time began to ease.”

Mark Harris, chief executive of mortgage broker SPF Private Clients reflects: “Given that we had two months last year when the property market was forced to close, it really is astounding that prices ended the year six percent higher when compared with December 2019.”

“The availability of very cheap mortgage finance, albeit with some restrictions on high loan-to-value products, has helped fuel the surge in activity.

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“The good news, as far as this year is concerned, is the re-emergence of 90 percent products, with HSBC making a welcome return to the fray this week.”

Mark suggests: “Covid has given people the opportunity to focus on their housing requirements and what is important to them and their families. Proximity to the tube or a train station as offices have become less crucial is influencing moving decisions, along with the desire for more space and a garden.”

Jeremy Leaf, former RICS residential chairman, adds: “Not surprisingly, the pace of house price rises started to slow in December, which is exactly what we found in our offices, as home movers were deterred by further lockdown restrictions and seasonal distractions.”

“However, we recorded very few abortive sales, other than when chains had broken down or price renegotiations in response to reduced activity.

“Therefore, looking forward we expect the pattern to be repeated and the overwhelming majority of transactions to proceed to completion, followed by more balance between supply and demand as rollout of the vaccinations hopefully accelerates.”

Of course, with the current lockdown period coinciding with what is usually one of the busiest three months of the year for housing market activity, there are those who believe that we are likely to see a step-change in buyer sentiment and behaviour over the course of 2021.

Tom Bill, Head of UK Residential Research at estate agent Knight Frank, comments: “Although we expect prices to be largely flat over the course of 2021, there may be a dip in the second quarter.

“Not only is this due to the end of the stamp duty holiday, but the fact a third national lockdown means some sellers may be inclined to hold off until spring.

“Any supply glut would put downwards pressure on prices, even if normality had begun to return through the vaccine rollout.”

What can we expect in the next three months? Russell Galley believes that the recent 13-year high of mortgage approvals bodes well for buyer activity and that “there may be enough residual strength in the market to sustain prices up to the deadline for the stamp duty holiday and the scaling back of Help to Buy at the end of March.”

There is, however, a caveat. Russell concludes: “With the pace of the UK’s economic recovery expected to be constrained by the renewed national lockdown, and unemployment widely predicted to rise in the coming months, downward pressure on house prices remains likely as we move through 2021.”

Follow Louisa on Twitter: @louisafletcher

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