What will happen to UK and London house prices in 2021?
Major estate agents are upgrading their house price forecasts for 2021 in the wake of the surprise pandemic property boom.
Savills previously expected house price growth to remain flat this year as the economy struggled to bounce back from successive coronavirus lockdowns and the end of furlough.
However, thanks to government intervention including the stamp duty holiday, now extended until September, and the prolongation of the furlough scheme, the estate agent expects house prices to grow by four per cent this year.
This follows an unexpectedly strong 2020 when house prices rose 7.3 per cent – the first time house prices have risen in a recession in modern history.
Lucian Cook, head of residential research at Savills, said: “2021 is going to be a complex and uneven year, with competing forces impacting the housing market at different points.
“But the outlook has improved since the beginning of the year given the speed of the vaccine programme, the expected relaxation of social distancing measures and government support for both jobs and the housing market.”
He said current mortgage data showed the number of home sales happening now was still well above pre-pandemic levels, while a recovering economy should support house prices towards the end of the year, once government support has ended.
Similarly, Knight Frank increased their UK house price forecast from 0 per cent growth in 2021 up to five per cent in the wake of the two government support measures.
Tom Bill, head of UK residential research at Knight Frank, said: “A sense of finality will be of overriding importance for the property market this year, in relation to the stamp duty holiday, lockdown measures and international travel restrictions.”
What will happen to London house prices?
Asking prices in London fell 2.2 per cent in the past year according to the latest Rightmove house price index, with the amount of time it takes to sell a home in the capital rising to 71 days from 48 days last September.
However, both Savills and Knight Frank agreed there will be a return to urban living in the not too distant future.
Tom Bill said: “As the stamp duty holiday elapses, normal seasonal patterns of activity will begin to return to the property market. If the vaccine rollout proves successful and the prospect of further lockdown measures recedes, we would also expect a requirement for outdoor space to ultimately become less prevalent in the property market.”
Knight Frank expects house prices in Greater London to rise four per cent in 2021, with a cumulative increase of 18 per cent by 2025.
Similarly, Savills’ Lawrence Bowles said: “As shops, restaurants and offices reopen, connectivity and convenience will return as motivators for people choosing where to live. This is particularly true for people working in those shops and restaurants for whom working from the kitchen table was never an option.”
However, in the shorter term, both agents predict that London will trail the rest of the country for house price growth in 2021 as buyers continue to seek space over convenience and urban buzz.
Savills research found that the markets furthest from London are likely to see the strongest house price growth because they are more affordable. Looking at the next five years, the estate agent said London house prices would grow by 12.6 per cent, compared to 21.1 per cent in the UK as a whole.
However, the country’s most expensive market in prime central London is “good value in a global and historical context after six years of price adjustments,” the report said. The prime central London market is expected to pick up in the second half of the year with a seven per cent bounce in 2022.
Knight Frank revised down their forecast for prime central London slightly due to uncertainty around the relaxation of international travel restrictions, as well as a two per cent stamp duty surcharge for international buyers, which is due to come into effect from April.
It expects house prices to rise two per cent in 2021, and agrees with Savills on a seven per cent uplift in 2022.