CEBR predicts 14% drop in house prices next year

Property Reporter
14th September 2020
House Prices Down

Newly released forecasts from the Centre for Economics and Business Research has predicted that average UK house prices will see a 14% drop in value by the end of 2021.

According to their research, the centre believes that despite a summer-boom and August's record highs, prices will start to fall significantly towards the end of the year and the first half of 2021, resulting in a 13.8% loss against this year's values.

The market "defied gravity" during August, according to CEBR. This was largely fuelled by the stamp duty holiday, which it predicts will spark a 1.2% increase in average prices and a 6.0% rise in the number of transactions "compared with what otherwise might have happened".

The Centre believes that the temporary nature of the tax reduction means that the policy’s short term effects could be even more dramatic, as people rush to complete transactions before the return to the previous stamp duty regime at the end of March 2021.

It also believes that pent-up demand during lockdown has sustained house prices. An estimated 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. Data from RICS suggests that buyers have returned to the market more quickly than sellers, boosting prices. Additionally, CEBR says the impact of the lockdown on low-income workers means that recent house price data is likely to have been skewed towards higher-value properties.

CEBR also believes that the suspension of forced sales and repossessions will have had some supply-side impacts on the overall housing market throughout the second and third quarters, boosting prices as well.

The centre concluded: "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."

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