House Price Rise and Fall: Experts explore the possibility of a post-pandemic crash

August 17, 2021


3 min read

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What's going on here?

Throughout the pandemic, UK house prices have skyrocketed. However, some economists have predicted prices will finally begin to fall again as the stamp duty tax break comes to an end.  

What does this mean?

The UK is currently in the middle of a housing price boom. Prices are 30% above the 2008 peak with the average house now costing £244,229 (5.4% higher than June 2020 rates). More homes have been sold each month during the past year than ever before. It is thought both the government’s stamp duty break alongside purchasers’ desires for outdoor space and home offices have pushed the current price inflation to record rates. Click here for another LittleLaw article on the UK housing boom. 

In July 2020 the UK government removed stamp duty on house prices up to £500,000, giving buyers a discount of up to £15,000. Stamp duty is a tax payable to the government after the purchase of any property, the amount payable differs depending on the type of property and is lower for first time buyers. The break was introduced to keep the market moving as purchasers faced financial instability after thousands of workers were made redundant or furloughed during the first lockdown. This strategy was a success, with many buyers taking advantage of the break.

As of 1 July 2021, the stamp duty is being steadily reintroduced and is now payable on properties over £250,000 (or on the first £250,000 for properties worth more than this). It is expected the end of the scheme will allow the market to settle.

What's the big picture effect?

Increases in house sales were not equal across the board. Houses over £500,000 have seen the biggest boom, with a 37% increase in transactions in the past year. However, the overall increase was only at 2%. This perhaps reflects wider trends in the housing market such as buyers’ interest to purchase spacious properties outside of large cities as flexible working becomes the norm. Flat sales have seen the lowest increase in both price and number of transactions, perhaps as buyers are now wary of purchasing leasehold properties in shared buildings after the recent cladding crisis.

 Younger first-time buyers will certainly be hoping this fall in prices continues. The CEO of lender Glenhawk Guy Harrington has asserted many young buyers have “been priced out” of the current market as demand has increased. The Guardian recently reported that whilst more over 65s than ever own their homes, this measure has fallen for all other age groups indicating that younger people are struggling to step onto the property ladder. Whilst some experts have predicted that a rise in unemployment may result in fewer buyers on the market, Robert Gardner, an economist at Nationwide, believes demand will “remain solid”. 

The market has already seen a fall in both house prices and the number of transactions. After the tax break was limited at the start of July, the Building Society reported house prices had now started to drop from record June levels. They note the high market activity in June was probably due to the “strong incentive to complete house purchases” before the tax was brought back.  The government will welcome the drop in prices as this indicates the market is becoming more affordable and accessible. The stamp duty reduction certainly functioned to keep the marking moving however, as statistics from June show, it had enabled house prices to inflate to record rates. If house prices will return to pre-Covid levels in the near future is as yet unknown.

Report written by Amber Allen

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