House prices: all you need to know in 2020 – and beyond

In this comprehensive guide to house prices, we discuss how to negotiate, as well as what to expect from property prices in 2020 – and 2021

house prices
(Image credit: Getty Images)

What can you expect from house prices for the rest of 2020, and in 2021? With the economy undergoing so many changes in the wake of Covid-19, house price forecasts are changing constantly, with much uncertainty remaining. It is, therefore, more important than ever to keep abreast of the latest developments, especially if you're planning on buying or selling a house in the next few months. 

The information in this guide is based on the most reliable expert opinion rather than mere speculation: we regularly monitor the latest forecasts from industry leaders and economic think tanks. It is important to note that while this up-to-date guide to house prices 2020 will give you a good general sense of where the property market is heading, it also pays to be aware of you local property market trends (we explain why below). 

  • It's more important than ever to find the best mortgage rates if you're buying a house – do this with the help of our guide

House prices 2021: what is the latest forecast? 

The current consensus among property experts and economic think tanks is that house prices will fall in 2021 – the question is by how much. The CEBR (Centre for Economic and Business Research) have been predicting a fall in house prices since the beginning of the pandemic, naming the end of 2020/start of 2021 as the point at which house prices would begin to fall. The think tank has revised its original, dramatic forecast of a 14-per-cent price fall to 10 per cent. That's still a significant reduction. However, it is now highly unlikely that this dramatic fall will happen this year; instead, property experts from Zoopla, Halifax, and Nationwide are all pointing towards the second quarter of 2021 as the beginning of the downturn. We explain why this is the case below. 

House prices are rising: why are experts predicting a downturn?

UK house prices are still on the increase as of the end of September 2020 – at the fastest pace since September 2016. The current rate of house price growth – five per cent – is a huge increase from the 3.7 per cent back in August, and a 0.9 per cent month-on-month growth. How can this record-breaking growth be pointing to a sharp downturn only a few months down the line? 

The short answer is that the current property market boom is, unfortunately, unconnected to an economic boom. Instead, the UK is officially in a recession as of August 2020, with the full effects of it yet to manifest themselves. As the latest Zoopla house price report explains, the housing market is 'not immune' to a sustained economic decline; it's just that, because pent-up demand from the Covid-19 spring lockdown is continuing to prop up house sales, any downturn would take many months to manifest itself:

'As well as the economic outlook and market sentiment, we need to keep a watchful eye on the relatively rapid increase in new supply and the pricing of this new stock. If demand were to weaken suddenly then there is a risk of an overhang of unsold stock and slowing in sale that would most likely require price reductions to support sales. This process can take up to six months to work through the system.'

The other thing that will happen in six months' time is the end of the current stamp duty holiday, which has spurred on many home owners to proceed with a house purchase. It is by now clear that the boom in house sales is being propped by by existing home owners who are able to buy larger homes with the help of both the stamp duty holiday and the equity they already have in existing properties. 

This is happening at the same time as a contraction of the first-time buyer market, with first-time buyers stung both by the difficulty in getting low-deposit mortgages and the looming rise in unemployment. 

The gap between existing home owners and first-time buyers isn't so obvious yet, but it will be starker a few months down the line.

All these factors will contribute towards a slowing down of the property market in 2021.

What is the average UK house price in 2020?

The most up-to-date average UK house price is £226,129, as of September 2020.

House prices and negative equity: should I be worried? 

Negative equity is when the value of the property becomes less than the loan you've taken out for your mortgage, and falling house prices will inevitably put some people in low or negative equity. However, it's only really a problem if you were planning on selling. If you do find yourself in negative equity, the best thing to do is to sit tight and to avoid selling at all costs. 

If you need to sell, for example due to moving for a job or because of a divorce or other life circumstances that mean you can't wait, then there are a few things you can do. 

1. Firstly, try overpaying your mortgage – if your current mortgage terms will allow you to. 

2. Consider renting out your property without selling and either renting or staying with family. Your lender will need to agree to this change.

3. Get in touch with your lender. A few offer negative equity mortgages. With one of these the negative equity would be transferred to a new property. On the downside, you might face early repayment charges on the existing mortgage, and there may be extra fees plus the new mortgage may be at a higher interest rate than your current one 

House price discounts for key workers: how will they work?

You may have heard about the government pledge to secure a 30 per cent discount on selected housing for first-time buyers, with priority given to key workers such as nurses, teachers, and firefighters. The First Homes scheme will only apply to homes in new developments – about 1,500 initially – and to 25 per cent of newly build affordable housing in the future. The discount will then be passed to subsequent buyers, to prevent attempt at profiteering from the scheme. 

Price caps will also apply to this scheme, with £250,000 the upper limit outside the capital, and £420,000 inside London. Applicants will need to have a household income of no more than £80,000, or £90,000 in London. The sales of First Homes will be restricted to local buyers for the first three months after the property being put up for sale. 

How to get the best house price if you're buying

There has been much discussion about buyers' expectations of reduced house prices after coronavirus. We'll be honest and say: this isn't currently the reality in the vast majority of cases, and asking a seller to reduce the price purely out of expectations of a post Covid-19 discount won't do you any favours. As property expert Phil Spencer puts it in an interview with Hello! magazine,

'That is taking advantage of the circumstances. In actual fact, the prices have not fallen yet, so in trying to renegotiate the price you agreed before lockdown, you are asking them to anticipate a fall that hasn't happened yet. That’s quite a lot to take on board as a seller… I think it's pretty rude to instigate that conversation yourself.'

All the available data shows that, in the vast majority of cases, the pandemic has not led to a reduction in asking prices. If you want a home in a prime area and in perfect condition, and with a garden, you are highly unlikely to get much give from the seller.

If you are hoping for a reduced price, you will have to compromise on something, whether it's location, the condition of the property, or its size. If you get the sense that the current owners are keen to sell, do negotiate, but be reasonable: trying to knock off much more than 10 per cent is likely to make you sound like you're not serious about the purchase. 

You also need to budget carefully. Be aware of what costs you'll need to cover on top of the house price, and start all negotiations with that knowledge. There will be a number of initial fees such as the valuation fee and the surveyors fee, as well as the additional parties to pay such as the lender/broker fees (if first time buyer, no estate agents fees) and the conveyancer.

There are is then the fees associated with the mortgage including the booking fee, arrangement fee and mortgage valuation fee. We recommend saving an additional £2,500 on top of your deposit to cover the costs.  Please be aware that if more than one person is purchasing and they have already owned a property then stamp duty will be payable even though the other person has never owned a property anywhere in the world before.

Find out more about negotiating house prices in our guide.

Sellers: how to boost your house price

There is by now plenty of evidence that Covid-10 has shifted buyers' priorities when it comes to buying homes, and if you're selling at this point, you'll need to bear those new priorities in mind. 

Kerb appeal is becoming more important, with people considering carefully where they'll be spending the majority of their time. So, a freshly painted exterior and tidy front garden will help you secure a better house price.

Next, consider shifting work circumstances: people will want to know about potential  home office space much more than they used to, and they'll likely be interested in opportunities for extending the property rather than, say, proximity to trains. 

Fid lots of ways to add value to your home in our guide.

House prices and mortgages: what first-time buyers need to know 

The hard truth is that homes have just become more expensive to first-time buyers not because of anything to do with house prices on their own, but because of the situation with first-time buyer mortgages

As a general rule, you will now need a 15 per cent deposit to secure a residential mortgage. Technically, five- and 10-per-cent mortgages haven't disappeared completely, but their availability is by now so limited that it's very difficult to get one. 

If you don't have the resources for putting together a larger deposit, look into Help to Buy, Shared Ownership, or a guarantor mortgage

You should also speak to a mortgage broker who might just be able to find a specialist lender for your needs, or will at least give you honest advice on what you should do with the deposit you have. 

We've teamed with online mortgage specialist Habito: use their mortgage comparison tool below to see how much you could borrow. 

Read more: