House prices will fall by nearly 14 percent next year as the stamp duty holiday ends and job losses continue to rise, a think tank warns.
Economists from the Center for Economics and Business Research have made the bleak prediction that a slump will follow the current mini-boom, with pent-up demand created during the lockdown freeze diminishing in the run-up to the tax cut deadline .
Homebuyers will have a stamp duty on the first £ 500,000 of a property purchase through the end of March 2021, yielding a maximum savings of £ 15,000.
This has amplified the mini-boom in the real estate market even as the UK plunged into its deepest recession ever in the second quarter, with house prices soaring to new record highs.
On track to crash: House prices are expected to fall 14% next year after the current mini boom
De Cebr said this has to do with ‘transient’ government policies and factors that give the housing market a temporary boost. Once these fade, it predicts that prices will plummet.
It said that despite recent price hikes, property values will start to decline ‘significantly’ by the end of the year, with average prices set to be 13.8 percent lower in 2021 than in 2020.
That prediction comes to a record £ 245,747 despite house prices rising 5.2 percent in the year to August, according to Halifax, Britain’s largest mortgage lender. The bank has also warned that the spike in prices would be “highly unlikely” to last.
Fellow mortgage giant, Nationwide Building Society, has made similar caveats as the index showed home prices were up 3.7 percent year over year.
In August, the UK housing market defied gravity again, with unofficial measures pushing average prices to record highs, the Cebr said.
“This is at odds with the broader economic turmoil as the UK is still in the early stages of reconstruction after its most severe contraction in economic activity ever.”
The recently introduced government cut in stamp duty, which provides a potential savings of £ 15,000 in tax bill for those buying homes costing £ 500,000 or more, is one of the factors causing this anomaly, according to Cebr.
The temporary policy is pushing prices and trades higher as people rush to complete trades before it expires on March 31 next year. But it will probably depress them next year when it ends and more people lose their jobs.
“We at Cebr estimate that the July stamp duty cut will cause a 1.2 percent increase in average prices and a 6 percent increase in transactions compared to what would have happened otherwise,” said the think tank.
“The temporary nature of the tax cut means that the policy’s short-term effects could be even more dramatic as people rush to complete transactions before returning to the previous stamp duty regime in late March 2021.”
Movements: According to Halifax, house price fluctuations in the UK in the past year
Rising demand from the lockdown period, when viewings were banned, is also flooding the market today.
The Cebr estimates that nearly 150,000 home sales were delayed by the lockdown.
It said, ‘This shows the amount of accumulated demand built up during the lockdown. While this will be matched to some extent by pent-up supply, data from RICS suggests that buyers have returned to the market faster than sellers, driving prices up. ‘
Costly: The average cost of a home in Britain has gone up to £ 224,123, Nationwide reported
Annual home price inflation initially fell in lockdown before skyrocketing, says Nationwide
Lower seizures due to government regulations have also reduced housing supply.
According to the Justice Department, there were only 161 mortgage repossession claims in the second quarter, a much smaller number than the average of 6,000 in a typical quarter.
“The suspension of foreclosures and repossessions will have had some impact on the supply side of the housing market during the second and third quarters, driving prices up as well,” Cebr said.
Additionally, the government’s Coronavirus Job Retention Scheme has limited the number of people who lose their jobs, but this will change when it ends on Oct. 31.
What’s behind UK real estate and US equities to lock in mini booms?
The UK real estate market and the US stock market seem to defy gravity.
The coronavirus crisis is still here, waves of job cuts keep coming, and almost everyone agrees there’s more bad news to come.
Still, stocks in the US and house prices in the UK are on the rise. Is there anything behind this other than cheap central bank money and the belief that it will continue to flow and support asset prices?
In this week’s podcast, Simon Lambert and Georgie Frost look at the parallels and differences between the UK and US national real estate and stock market obsessions.
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