Save, make, understand money

Buy To Let

House price falls of 14% forecast for 2021

Paloma Kubiak
Written By:
Paloma Kubiak

House prices are forecast to fall by 14% next year according to the Centre for Economics and Business Research (CEBR).

The fall is expected to come after the stamp duty holiday ends and the full impact of the winding down of the job retention scheme is felt by the economy.

House prices are currently being kept artificially high, said the economic analysts, due to a number of factors.

Pent up demand equating to around 150,000 home movers was unleashed onto the market in June, after housing transactions were put on hold for three months from March.

And with buyers returning to the market quicker than sellers, according to the Royal Institution of Chartered Surveyors, prices were driven up to record levels in August. Nationwide reported an average increase in house prices of 2% month-on-month.

CEBR said the freeze on house repossession has also acted as a drag on homes coming on to the market for sale, creating a further imbalance between supply and demand.

It estimates that July’s stamp duty cut will cause a 1.2% increase in average prices and a 6% rise in the number of transactions compared with what otherwise might have happened. The impact of the temporary stamp duty cut could be even more dramatic as the people rush to beat the 31 March deadline.

But CEBR warned that the end of the government’s package of support measures will cause a significant fall in house prices next year.

“What most of these factors have in common is that they are transitory in nature,” the report read. “The Coronavirus Job Retention Scheme was cut after August and it, as well as the ban on mortgage possessions, is scheduled to end on 31 October, while stamp duty will revert to its original level in April 2021.

“Moreover, pent-up demand from the period of lockdown will eventually work its way out of the system in the coming weeks.

“Our analysis suggests that prices will start to fall significantly towards the end of the year and the first half of 2021, though there might be a short spike as the stamp duty reduction comes to an end, with average house prices forecast to be 13.8% lower in 2021 than in 2020.”