Property prices have continued to increase during 2021, carrying on the trend seen last year. In fact, we’ve not seen this kind of pricing rise since 2007 and we all know what happened there. With people frantically buying properties, sometimes without even viewing them, are we likely to see this continue? Or will we see a crash in the market, similar to that of the noughties?
It seems unusual to see such growth in a time where the economy has been struggling and job uncertainty became the norm. However, it does seem that 2021 will see the UK recovering from the tumultuous financial uncertainty of last year.
Why Have Property Prices Risen?
The first and maybe most obvious reason for the rise is the stamp duty holiday. This was introduced by Rishi Sunak as a way of keeping the housing market buoyant during the pandemic. With substantial savings for buyers, it encouraged many to take of advantage of the cost savings and maybe move earlier than they had planned.
People’s need for space is also a consideration. With many people gaining a new appreciation for outdoor space when in lockdown. Not having a garden and access to limited green spaces in the surrounding areas could have been the deciding factor for some.
With the rise of remote working has meant that many have continued working from home at least some of the week. Thus, taking away the necessity to live in smaller inner-city houses and giving people the opportunity to buy larger houses with more outside space, sometimes for a similar price.
The security of the furlough scheme brought in by the Government to support people unable to work, that and the availability of grants to businesses and self-employed. These schemes have given people the confidence to be able to decide to move to a new house.
With little to do in lockdown, spending decreased overall and many people were actually able to save money. Fast-forwarding their plans to purchase a home for the first time, moving to a larger home or to a different area.
Lending and Mortgages
The ability to access mortgages with low interest rates has also helped keep the property market going. With interest rates at 0.1% mortgage rates have also stayed low. These makes purchasing a home more accessible and more affordable for many.
The amount of borrowing has also increased with many lenders offering mortgages with just 5% deposit. Something we haven’t seen in the marketplace for some time. These types of mortgages are often backed by the government, giving lenders security that the debt will be repaid. This type of mortgage may often cost more and have higher interest rates, but they do allow people to get onto the housing ladder and that’s been something very difficult for many.
What’s Next for the UK Property Market?
Well, unless we see an increase in available housing, then it’s likely that demand will continue to outstrip supply. These are the circumstances in which house prices rise.
That doesn’t necessarily mean we will see a big crash though. When you look back in history, financial crashes of all kinds tend to happen after a big event rather than a gradual rise. That doesn’t mean it won’t happen, but we could just as easily see a flattening out and calming down of the property market, particularly as many of the Government schemes and life returns to some kind of normality.
Perhaps the biggest worry is that when Government support and schemes such as furlough ends we could see unemployment. This is a risk to the property market, if this happens and housing becomes unaffordable then we could indeed see a sharp drop.
Time will tell and if the pandemic has taught us one thing, it’s that things can change dramatically and quickly. But history tells us that the property market always recovers eventually and so if you are prepared for the worst and hopeful for the best, then you can’t go too far wrong.