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House prices in the UK are expected to fall by up to 5% next year, fuelled by rising unemployment and the end of the government’s stamp duty holiday.
Halifax, Britain’s biggest mortgage lender, said the economic fallout inflicted by the pandemic would catch up with the property market in 2021, after an unexpected boom during the coronavirus pandemic. It is forecasting a fall in house prices of between 2% and 5% for the year as a whole.
It said the impact of the Covid crisis on household finances had been delayed by supportive government policies such as the furlough scheme, but that the gradual scaling back of support next year, with the closure of the wage subsidy programme from the end of April, meant unemployment would rise. This in turn will pile pressure on the property market after sharp price rises in 2020.
Russell Galley, managing director at Halifax, said: “While the economy should begin to recover in 2021, helped by the roll-out of Covid vaccines, the jobs market will inevitably adjust to the changes in demand that are occurring, and unemployment is expected to rise. With the stamp duty holiday also due to expire in March – and lower levels of demand – housing market activity is likely to slow.”
The forecast for the housing market comes as Britain’s economy is under renewed pressure from a new strain in the virus, tougher lockdown controls for much of the country, and chaos at Britain’s borders with just days to go before the end of the Brexit transition.
Robert Jenrick, the housing secretary, has confirmed the sales and rental markets will remain open in tier 4 areas across London and the south-east of England. However, analysts increasingly warn that the economic fallout from the pandemic and scaling-back of government support next year will cause a short-term crash in house prices.
The Office for Budget Responsibility, the Treasury’s economics forecaster, expects that house prices will plunge by more than 8% next year before staging a rapid recovery in 2022.
The OBR also said there would be a boom in property transactions before the end of the stamp duty holiday in March, as prospective buyers rush to avoid the deadline. Sales volumes are then expected to fall sharply, exacerbated by rising unemployment after the end of the furlough scheme in April.
However, Halifax said declines of up to 5% would only partly erase average growth in house prices of £18,000, or 7.6%, over the past year. It also said that prices were still well out of reach for many first-time buyers, made worse by the economic fallout from Covid driving up inequality.
Galley added: “Despite the deepest recession for centuries, house prices have risen over the past year at their fastest rate since 2016, with mortgage approvals also at their highest level for over a decade. This growth has been driven by a shift in demand from buyers as a result of increased home working and a desire for more space, while the stamp-duty holiday brought forward many transactions that might otherwise have been planned for next year.”
Source: The Guardian
Keyword: House prices will drop in 2021 as Covid impact hits, says Halifax | Business