What is going to happen to UK house prices? October 2021

12 min Read Published: 04 Oct 2021

What is going to happen to UK house pricesIf you are planning to buy or sell a house, you will be interested to know what is likely to happen to house prices and whether now is a good time to move. Whether you already own a property or are a first-time buyer, an adjustment in house prices can be beneficial. A drop in price in the area you wish to buy in can save you money, whereas a rise in your current property's value means you can secure a good price and have more capital to invest in your next purchase.

House prices are determined by a number of factors, including:

  • The overall health of the economy: The unemployment rate and wage growth both play a part in consumer confidence, which impacts how confident people are to move and how much they are willing to pay.
  • Interest rates: The Bank of England sets the base interest rate level and, if it is relatively low, people can afford to spend more on a property as the cost of borrowing is lower. This tends to push house prices up.
  • Supply and demand: Local house prices will be determined by how desirable a particular location is and how many similar properties are available. If, for example, a new housing development is completed, this can reduce the value of properties nearby as there is greater competition for buyers. Conversely, some properties will always command a premium because they are in a sought-after area where the housing stock is limited.

What has been happening to house prices?

There are a number of respected sources of data relating to house prices, including monthly indices that provide information on house price changes over the previous month and over the preceding 12 months. Below is a summary of each published index.

The UK House Price Index

The UK House Price Index is the most accurate of the various house price indices as it is calculated based on completed sales, both for cash sales and those with a mortgage. The wide-ranging data is sourced from HM Land Registry and other government sources. However, while it gives a very clear picture of what is going on in the housing market, there is a lag in the data being published. The latest data currently available relates to July 2021. It showed the average house price in the UK has risen by 8% year-on-year, but there was a significant fall - 3.7% - compared with June.

UK House Price Index July 2021 June 2021
 

Monthly change

-3.7% 4.5%
 

Annual change

8% 13.2%
 

Average house price

£255,535 £265,668

Nationwide House Price Index

The Nationwide House Price Index is calculated based on its own data of mortgage approvals. It showed a softening in house prices, with minimal growth of 0.1% in September compared with growth of 2.1% in August, which was the second-largest monthly growth in 15 years. Commentators are putting this slowdown down to the end of the stamp duty holiday at the end of September taking some of the heat out of the market.

Nationwide House Price Index September 2021 August 2021
 

Monthly change in house prices 

0.1% 2.1%
 

Annual change

10% 11%
 

Average price

£248,742 £248,857

 

Halifax House Price Index

The Halifax House Price Index is calculated from its own database of approximately 300,000 mortgage approvals. Recent data shows house price inflation has started to slow over recent months, with a lot of the heat going out of the market since the peak earlier in the year. That said, prices are more than £23,600 - 9.9% - higher on average than they were when lockdown restrictions eased and the housing market reopened in June 2020.

Halifax House Price Index August 2021 July 2021
 

Monthly change in house prices (seasonally adjusted)

0.7% 0.4%
 

Annual change

7.1% 7.6%
 

Average price

£262,954 £261,221

 

Rightmove House Price Index

Unlike the other indices that are based on mortgage approval data or completed sales, the Rightmove House Price Index looks at the average asking prices for properties listed on the Rightmove portal. This is a good reflection of sellers' confidence, but doesn't clearly demonstrate how many of those properties end up going under offer at a much lower price or, in fact, don't end up selling at all.

The growth in September can be explained in part by the record lows in available properties, meaning demand is far outstripping supply, driving up asking prices. Activity could pick up in the autumn, a time when traditionally more people decide to put their properties on the market.

Rightmove House Price Index September  2021 August 2021
 

Monthly change

0.3% -0.3%
 

Annual change

5.8% 5.6%
 

Average asking price

£338,462 £337,371

 

What is driving the change in house prices?

The housing market has been on an incredible journey over the past 18 months, with a significant slump as the country entered into the first lockdown in March 2020 followed by a massive resurgence from June 2020 when society began to open up again. A key driver was the introduction of a stamp duty holiday on 8 July 2020, which offered buyers a saving of up to £15,000 on their tax bill when purchasing a house. This acted as a stimulus, ironically driving house prices up by an average of £15,409 between June and November 2020, according to figures from the Halifax, in effect wiping out the stamp duty saving.

The main stamp duty holiday ended at the end of June 2021, with a tapering until the end of September during which time buyers could save a maximum £2,500 off their bill. Interestingly, while the pace of house inflation peaked in May, it has continued to trend upwards even after the stamp duty holiday deadline passed. This has been helped by historically low rates on mortgages, as well as the reintroduction by lenders of higher loan-to-value deals, opening the market up to more first-time buyers.

Anecdotal evidence from estate agents suggests many people have reassessed their priorities since the start of the pandemic, including where they want to live. There has been an increase in interest in properties outside of the main cities, with home buyers placing more value on outside space and more generous living space. The greater capacity to work from home has also suddenly made living within easy reach of commuter links less important. Whether these trends will continue as people start to return to the office remains to be seen.

Is now a good time to move house?

Evidence suggests there is still a large number of people looking to move, with estate agents stating that demand is far outstripping demand, which is keeping prices at elevated levels. This is particularly the case in villages and coastal towns, which are deemed desirable relocation areas for city-dwellers. This means house buyers are having to remain quick-thinking and decisive when house-hunting.

And while the stamp duty incentives offered by the government have now coming to an end, the easing of lockdown restrictions, a rise in average wages and a downgrading of the anticipated unemployment rate are helping boost confidence. This could help keep house-price inflation steady, with fears house prices are going to fall dramatically likely to be largely unfounded.

A potential change that could effect the housing market is an anticipated increase in the base rate by the Bank of England as inflation continues to creep up. With mortgage rates currently at very low levels, homeowners may choose to remortgage on to a longer-term fixed rate deal rather than moving. If rates do go up, this will make monthly mortgage repayments more expensive and limit the amount lenders will allow people to borrow because of their affordability calculations.

How do I know what my property is worth?

While it is useful to consider the broader market trends for the UK, it's also important to work out what is happening in your local area if you are planning to buy or sell a property. There can be a great deal of variation in the price of a house on one street compared to the same style of house on an adjacent street, so it pays to do your homework. Good sources of information include:

  • Property websites: Sites such as Rightmove and Zoopla have features that give you an estimate of what your house is worth based on its sales history and what other local properties have sold for. These tools are not completely accurate but give you a good starting point to work out how much you could reasonably expect to sell your house for
  • Land registry data: It is possible to access the sold prices for all the properties in your local area, sorted by how long ago the property sold. This gives a good indication of what properties are actually selling for, compared with the asking prices that they are being marketed at.
  • Estate agent: A good local agency with properties on its books similar to the one you are trying to sell will be able to give you the best idea of what you are likely to be able to sell your property for. It is a good rule of thumb to get valuations from a few different agents as there could be some variation in the valuations they provide. Read our article: How to find the best & cheapest local estate agent in seconds.