What can we expect from house prices in 2021? After a record=breaking year of house price growth that has defied all expectations, will next year see a dramatic decline of the property market? Will the end of the stamp duty holiday kill off the exceptional demand that is driving house sales in the UK?
We have the answers to these questions – and many more that you may have, whether you're buying or selling a house in 2021. We regularly monitor the latest forecasts from industry leaders and economic think tanks to bring you the most up-to-date house price statistics and prognoses. However, it is important to note that while this up-to-date guide to house prices 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
Are house prices rising or falling?
The UK has seen record-breaking house prices rises from June 2020 onwards; the latest figures by Zoopla show that November 2020 saw the highest average annual increase of 3.9 per cent. Some figures suggest that month-on-month house price is finally slowing down, albeit by very small increments (less than one per cent). In other words, house prices are still increasing throughout the UK, but the rate at which they're doing so may be showing signs of decreasing.
House prices 2021: what is the latest forecast?
Up until very recently, the consensus among property experts and economic think tanks was that house prices will fall in 2021 – property experts from Zoopla and Halifax were predicting a gradual slowing down beginning in the second or, perhaps, even third quarter of 2021.
However, the latest house price forecasts lack the former confidence in house prices falling when stamp duty holiday and furlough schemes come to an end. It is now looking likely that the latest Covid-19 lockdown measures will make many more existing home owners rethink their living situation and seek to move. With the supply and demand of housing severely imbalanced, the sustained demand for property will continue to prop up house price growth.
It also is now becoming apparent that the end of stamp duty holiday in March 2021 will not cause the mass withdrawal of buyer from the market that was once expected. Stamp duty relief has given the property market an additional boost, but it's not the hugely influential force it was once assumed to be.
If this scenario pans out, we likely won't see any real decline in house prices until 2022, when the difficulties faced by first-time buyers will finally begin to show.
Bearing all of this in mind, it's still important to pay attention to your local market. Local conditions will continue trumping general trends; if house prices in your area have been rising consistently even before Covid, expect this trend to continue.
What is the average UK house price in 2020?
The most up-to-date average UK house price is £253,243, as of November 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 (opens in new tab) 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 (opens in new tab): use their mortgage comparison tool below to see how much you could borrow.