The housing market faced huge challenges last year. Yet, property prices increased. Will they continue to do so this year?


In 2020, the property market was forced to temporarily halt during the first lockdown, significantly affecting sales. This was followed by mortgage providers withdrawing mortgages with a high loan to value (LTV) ratio from the market, hampering first-time buyers trying to get on to the property ladder. On top of this, were Brexit concerns weighing on some decisions.

Despite all that, the Halifax House Price Index showed a 6% annual increase. In fact, the average house price reached a record high of \’a3253,374. If you looked at those figures alone, you\’92d be forgiven for thinking that there weren\’92t economic challenges and concerns for much of the year.

So, is the property boom set to continue?

The truth is no one knows, even opinions among experts are divided. Assessing factors that influence the property market can be difficult at the best of times, and during a pandemic even more so.

However, the ongoing situation is affecting the sentiments of buyers. According to Aviva , 10.5 million people put home-buying plans on hold in 2020. The vast majority (94%) said they had postponed, not cancelled, plans, so some may begin searching for a home in 2021. However, most are prepared to wait for the right conditions, expecting, on average, to delay plans by 16 months. This could affect demand for housing throughout the year.

The overall sentiment from experts is that house prices are likely to fall or, at least, that the pace of growth will slow.

Halifax forecast a fall of up to 5%

Halifax , one of the largest mortgage lenders in Britain, predicts that the property market will suffer a dip in 2021. A fall of between 2% and 5% is forecast for the year as a whole. This is driven by two key factors:

  1. Rising unemployment: As the furlough scheme comes to an end and businesses still face challenges, it\’92s expected that unemployment will rise. In the Spending Review, chancellor Rishi Sunak predicted that unemployment would surge to 2.6 million by mid-2021. This would represent an unemployment rate of 7.5%. The last time unemployment was this high was in the wake of the 2008 financial crisis. If lockdown continues, it\’92s likely the government will extend or introduce schemes to support businesses in retaining their workforce. However, unemployment is still expected to rise.
  2. End of the Stamp Duty holiday: One of the reasons for housing prices rising in 2020 was the introduction of a Stamp Duty holiday. It means those purchasing a main home with a value of less than \’a3500,000 could avoid paying Stamp Duty. Those purchasing a more expensive main home, second property or buy to let investment are still liable for Stamp Duty but could make significant savings. The holiday will come to an end at the end of March 2021. As a result, demand for housing could fall once the deadline passes.

Do falling house prices affect you?

While no one wants to see the value of assets fall, in most cases, house prices falling will have little impact on you.

If you have no plans to sell your home, try to tune out the short-term movements of the property market. Just like any other investment, you should look at your property as a long-term one. While house prices may fall this year, historically, they have increased. Following the 2008 financial crisis, house prices fell sharply by 20% in 16 months, but they did recover and your property is now likely worth much more than it was 12 years ago.

Of course, if you\’92re hoping to buy this year, for example, as a buy to let property, you could benefit if prices fall. Likewise, if you hope to sell your property and purchase a new home, the market movements are likely to balance out. While you may lose out when selling, you should make savings when buying.

Those most at risk of falling house prices are homeowners with a low LTV ratio, as they could be left with negative equity. This is where your mortgage is greater than the value of your home. This is most likely to apply to first-time buyers who have not had as long to build up equity. However, as mentioned above, focusing on the long-term can help. Unless you plan to move, negative equity will have little impact on your life even though it can be a worry. Over time, prices are likely to rise and as you make repayments you\’92ll move back into positive equity territory.

If you do plan to move in 2021, please get in touch with our team, we can help you secure a mortgage and assess your financial situation.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.