House prices are expected to fall by up to 14% in 2021 as the long-term effects of Coronavirus take hold across the UK economy, new research shows.
Despite house prices hitting record highs in August, the Centre for Economic and Business Research (CEBR) warned that things might not be as rosy as they seem and that prices will 'fall significantly' by the end of the year.
The researchers said that current prices 'defied gravity', but could not last long, especially when special measures, such as the stamp duty cut and furlough support, start to wind up.
Since the start of lockdown in the UK, the government offered up to 80% of earnings for millions of employees as part of the Coronavirus Job Retention Scheme.
Some 9.6 million workers and millions more self-employed people who were unable to work due to lockdown signed onto the scheme and were still receiving assistance in August. CJRS is due to end in October.
Similarly, in March Chancellor Rishi Sunak abolished stamp duty on property sales up to £500,000 until March 2021.
What most of these factors have in common is that they are transitory in nature. Indeed, the Coronavirus Job Retention Scheme was cut after August and it, as well as the ban on mortgage possessions, is scheduled to end on 31st 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.said the CEBR in its report
Pent-up demand in the housing market is also a key factor in driving the boom already underway, said CEBR.
There were just 246,000 house moves across the country during Lockdown, compared to almost 400,000 over the same period in a normal year.
This implies that nearly 150,000 house purchases that would otherwise have taken place were put on hold between March and June as a result of the coronavirus pandemic.said the report
Experts from the mortgage and real estate industries agree that pent-up demand is just one factor being the market swell.
Lockdown has obviously got lots of people thinking about making a big change to their lives – and what bigger change is there than moving home? It's also clear that many people are reevaluating priorities in terms of where they want to live and how much space they have.Said Rune Sovndahl, CEO of Fantastic Services, told PropertyWire.
The CEBR also warned that the miraculous property rush might not be as extreme as it seems. Most of the headline-grabbing data from recent months has come from mortgage providers and is based on the number of transactions they handle.
This means that the data might not be painting an accurate picture of the whole of the market.
CEBR said that it was likely that ongoing sales represented higher-value properties changing hands between high-earners in protected jobs.
This would 'skew' the data because almost all of the sales taking place at the moment are for houses in the higher price ranges.
At the same time, millions of people in the gig economy and on lower incomes have been disproportionately affected by job and income losses.
It is possible that millions of the people in these lower-income brackets cannot afford to move home as a result of the virus, but this would not appear in most data, which is based on sales completed by lenders.
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