After reports that house prices had fallen for the first time in years on July 2021, there was much speculation about the future of the housing market. Was this a precursor for a larger slump, and were we headed for a fall in house prices sooner rather than later? Were steadily rising house prices before the drop evidence of an unsustainable market trend? And what does this mean for the market? We will discuss the future of house prices in the UK, by examining past trends and recent data to find out if the market is destined for a bust.
Trends Before the Pandemic
Prior to the COVID-19 pandemic, which had a series of effects on the housing market (and which we will address shortly) house prices had been growing mercurially. After the 117% increase in average house price in the 2000s, the 2010s saw a comparatively meagre 33% growth – a rate seconded only by the 21% growth of the 1990s in recent history. Recession was the primary cause for both of these slumps, with the 2000s showing a significant bounce-back under New Labour. The 2009 banking crisis and subsequent recession, which coincidentally started as a result of sub-prime mortgages, saw a much slow return in the rate of house price increase – as the effects of quantitative easing rejuvenating the rate of house price growth over time.
The Effect of Coronavirus
The coronavirus pandemic severely affected the number of house sales taking place in 2020; despite laws allowing ongoing house moves to continue, successive lockdowns resulted in a downturn in sales, which in turn had an effect on the housing market. To stimulate growth again, the government announced a 12-month freeze on stamp duty in June 2020. This made selling more expensive properties a far cheaper process, and with the advent of online property conveyance solicitors, transactions could take place again.
The house price drop mentioned at the start of this piece was the direct result of stamp duty being reinstated in full, with a majority of sellers aiming to complete their sale ahead of the 30th June deadline. The drop in house price was a function of the market adjusting for stamp duty, and does not appear to be the harbinger of future slumps. Instead, house price growth is projected to be robust, with August 2021’s growth already back at 10.6%. There is no indication that house prices will suffer in 2022, and in fact it seems more likely that the rate of growth will continue to increase with demand.