What price for post-pandemic property in 2021?

Seasoned investor or first-time buyer, the housing market is set to throw you some curve balls as we turn a ‘back to normal’ corner

House prices are on the rise despite the virus upheaval (Getty)

You know when even estate agents start warning us to take the latest property price figures “with a pinch of salt” that it is the end of a surreal year in more ways than one.  

Forget the empty city centres, the masked millions and world leaders’ awkward attempts at an elbow bump, when a heavyweight house price index like that of the Halifax comes out with a 7.6 per cent annual price growth this week but those with a vested interest warn it’s just not true, there’s something unsettling going on.  

It has been thus for most of the year. Dire predictions of a huge crash as we reined in our spending and worried about losing our jobs amid the first wave of economic chaos have been traded for soaring prices and record mortgage approvals after unprecedented stimulus.  

Today, at the end of the year of the great 21st century pandemic, the average property price in the UK stands at a little over £253,000 – up by more than £15,000 since June.  

That’s the strongest five-monthly gain since 2004. Which is more than a bit nuts.

As we predicted back in May our property wish lists have changed fundamentally in 2020 as we decided to ditch the now slightly dimmer lights of the big cities and great glass elevators for the seeming oasis of the rural life working from the kitchen table.  

The great shift in personal priorities, with the new determination for those with job security and the financial means to buy the lifestyle they aspire to, has certainly had a huge impact on the market in 2020.  

Meanwhile, the race to buy in light of the stamp duty tax saving has served to push prices up so far that “the saving of £2,500 on a home costing £250,000 is now far outweighed by the average increase in property prices since July”, Russell Galley, managing director for Halifax noted this week.

And now the data for November shows agreed sales and new instructions to sell have both fallen to their lowest level since mid-lockdown May, though both are still well above seasonal norms.

Which all begs the question: What on earth happens next?

Post-pandemic predictions

“The housing market has been much more resilient than many predicted at the outset of the pandemic, and indeed many households remain confident about further price growth next year,” adds Galley.  

“However, the economic environment continues to look challenging. With unemployment predicted to peak around the middle of next year, and the UK’s economy not expected to fully recover the ground lost over 2020 for a number of years, a slowdown in housing market activity is likely over the next 12 months.”

The key property date is 31 March 2021, when the current stamp duty relief on properties sold for up to £500,000 is unwound and buyers will once again be required to pay the tax on residential properties bought for upwards of £125,000.

“At times like this it’s important to remind ourselves that [the latest Halifax] index is based on mortgage approvals, not actual sale prices,” notes Nicky Stevenson, managing director at estate agent group Fine & Country.  

“Timetable pressure to complete before the stamp duty holiday closes at the end of March is mounting and many of the offers that underpin these numbers will not in fact take place. There’s still plenty of time before exchange for chains to suffer a misstep, pushing sales into April.”

And that, Stevenson warns, will force many of those who raised offers in haste to seal deals to scrutinise those valuations again.  

“If the economic outlook and labour market deteriorate, with a no-deal Brexit still very much on the cards, this could prompt a larger proportion of buyers than usual to get cold feet and pull out. That’s where a big dent in this growth figure is likely to come from in reality.”

And with unemployment rising by almost 5 per cent in the three months to September – even before the furlough scheme was originally due to end – she’s far from a lone voice predicting price drops.  

“House price growth will almost certainly moderate in the first quarter and values will come under pressure if unemployment starts to rise sharply as expected,” David Westgate, group chief executive for the Andrews Property Group says.  

"The number of major high street firms collapsing suggests house prices are in for a tough 2021. At lower loan to values, we’re not expecting the market to grind to a halt but for first time buyers and anyone with a smaller deposit it's going to be challenging next year."

Beware the numbers

There’s also the small matter of affordability, especially at that entry level.  

“In the short-term, prospective homeowners will continue to face the double whammy impact of high house prices and low mortgage availability above 85 per cent loan to value,” Olu Olufote, founder of homeownership platform RenterBuyer warns.  

“Affordability is proving elusive for far too many would-be homeowners and many will not be overly upset to see the property market come a cropper in 2021.”

For aspiring buyers lucky enough to be in a job the economic fall-out of the pandemic could at least offer a chance to get onto the ladder.  

 “Anyone seeking to buy their first home in today’s market needs to show estate agents and mortgage brokers that they are genuinely purchase-ready rather than simply chancing their arm,” adds Olufote.

“Fortunately, there are a number of government initiatives designed to help aspiring homeowners, including stamp duty reliefs, help-to-buy schemes and various saving schemes. Having access to the most relevant information suitable to each individual is therefore key in navigating the path to homeownership.”

But those who buy property on investment terms rather than simply a roof over their heads should also keep their wits about them over the figures themselves in 2021, says Anna Clare Harper, chief executive of asset manager SPI Capital, especially as those first-time buyers struggle to make their mark.

“Some subtleties the data mask include how homebuyers are overtaking first-time buyers as the driving force behind housing market growth, and how the rate of growth in detached properties has been markedly higher than in flats, as home buyers who can afford to do so are increasingly and unsurprisingly choosing more indoor and outdoor space,” she says.  

“There is also an increasing number of ‘anomalies’ in the market. For example, as new regulations have come in to prevent a repeat of the tragic Grenfell incident, hundreds of thousands of homeowners have found the values of their properties to be dramatically reduced, often with terrible personal consequences.  

“This is just one example of a wider trend: as our housing market becomes more regulated and standards are increased, it becomes increasingly important to consider all angles, rather than relying on national market trends.”