According to Savills, home prices across UK forecasted to rise +9% in 2021. This mid-year forecast of +9% jump in home prices is substantial increase from Savills’ original prediction of +4%.
Residential Prices Expected to Increase +9% in 2021
The United Kingdom’s housing market has been described by many as “extraordinary” this year. So extraordinary that Savills has revised its original prediction of a +4% country-wide home price increase to its most current prediction of a +9% home price increase in 2021.
Transaction volumes are on track to hit 1.62M this year, according to Savills. Such transaction volume would translate into being +35% higher than the average UK transaction volume during the five years prior to the COVID pandemic.
What Conditions Changed that Prompted Savills to Up Its Expectations of Increased Home Price Growth?
Savills made its original 2021 forecast of UK home price growth at +4% before the government extended its stamp duty holiday. (Stamp duty is a tax home buyers pay on property purchases.)
Since the government declared a tax duty holiday in June 2020 to invigorate the country’s housing market in light of the COVID pandemic, home buyers haven’t been required to pay any stamp duty on the first L500,000 or USS624,200 of the purchase price. (It’s estimated that 1.3M home buyers across the UK have benefitted from the stamp duty holiday.) Originally set to expire in March 2021, the government extended this home buying incentive through June.
As of July 1, the stamp duty will kick in above the home purchase price of L250,000 at the following rates:
- L250,000 – L925,000 = 5%
- L925,001 – L1,500,000 = 10%
- L1599,001 and above = 12%
From October 1, 2021, tax rates will return to normal. That means that home buyers will start paying stamp duty at L125,001.
Going forward as of October 1, the following rates will apply:
- L125,001 – L250,000 =2%
- L250,001 – L925,000 = 5%
- L925,001 – L1,500,000 = 10%
- L1,500,001 and above = 12%
Implications of Potentially Large Home Price Growth
Savills expects home price growth to jump +3.5% in 2022. Then, over the next three years approaching 2025, Savills anticipates home prices to rise as much as +12% over the three year total. If all of these projections are realized, that would bring total home price growth over the coming five years to hit +21.5%.
Lucien Cook, head of residential research with Savills, said, “Some of the growth generated by the extraordinary market conditions of 2020 and 2021 could unwind at times during 2022, but we see nothing on the horizon that would trigger a major house price correction.”
Cook continued. “Such strong growth in 2021 will leave less capacity for growth of the next few years, particularly as interest rates are expected to rise a little earlier than commentators had previously projected.”
(By the way, these Savills’ forecasts assume a Bank of England base interest rate of no higher than 0.5% by the end of 2025.)
Thanks to bbc.com and MansionGlobal.