If 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 January 2021. It showed the average house price in the UK has risen by 7.5% year-on-year, with a 0.4% fall from December 2020.
|UK House Price Index||January 2021||December 2020|
|Average house price||£249,309||£251,500|
Nationwide House Price Index
The Nationwide House Price Index is calculated based on its own data of mortgage approvals. It shows a fall of 0.2% in March 2021, following a small rise in February 2021. Meanwhile, the annual change of 5.7% shows a continuation of the strong trend in rising house prices, in spite of the uncertainty during the period over what would happen with the stamp duty holiday (there is more information on this later in this article).
|Nationwide House Price Index||March 2021||February 2021|
|Monthly change in house prices (seasonally adjusted)||-0.2%||0.70%|
Halifax House Price Index
The Halifax House Price Index is calculated from its own database of approximately 300,000 mortgage approvals. It shows a month-on-month rise of 1.1%, following small falls in January and February. This follows a period of strong growth in the second half of last year, with the annual figure of 6.5% for February far outstripping what was recorded for the same month last year.
|Halifax House Price Index||March 2021||February 2021|
|Monthly change in house prices (seasonally adjusted)||1.1%||-0.10%|
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. That said, the figures for this month show an uptick of 0.8% in March compared with February, a 2.7% rise on the same month last year.
|Rightmove House Price Index||March 2021||February 2021|
|Average asking price||£321,064||£318,580|
What effect is stamp duty having on house prices?
House prices have been buoyed since Chancellor Rishi Sunak introduced a stamp duty holiday on 8th July, 2020. This followed several months of the property market flatlining as the effects of the first national lockdown - combined with high levels of market uncertainty - resulted in people choosing not to move. The announcement that stamp duty was going to be suspended on the first £500,000 of a property's value - a potential £15,000 tax saving - coupled with pent-up demand meant the property market was buoyed during the second half of the year. Indeed, figures from the Halifax show that the average house price increased by £15,409 from June to November, in effect wiping out the stamp duty saving.
As the original deadline of March 31, 2021 approached, the market showed possible signs of cooling, with the main house price indices recording a small drop for January 2021. However, activity picked up in February in the hope that the stamp duty holiday would be extended further. This proved to be the case, with the Chancellor announcing in the Budget that the stamp duty holiday would be extended in its current form until the end of June 2021. Then from 1 July until 30 September 2021 the stamp duty free limit will drop from the first £500,000 of a property price to the first £250,000.
The tapered end to the scheme could lead to house prices remaining at elevated levels in the coming months. Longer term, we are likely to see a cooling off in the market as the stamp duty incentive is removed. This could be compounded by the end of the furlough scheme and the threat of rising levels of unemployment, which is due to peak at 6.5% in the middle of next year.
Is now a good time to move house?
While the stamp duty holiday has created an artificially elevated level in house prices over the past 8 months, the fact prices grew again in February, in spite of the - then unchanged - deadline of 31st March looming, suggests other factors are also influencing property prices.
Anecdotal evidence from estate agents suggests many people have reassessed their priorities over the past year 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 society begins to open up again remains to be seen.
Another driver for house prices is likely to be a resurgence in interest from first-time buyers. They were thrown a lifeline in the Budget, with the mortgage guarantee scheme increasing access of 95% LTV mortgages, significantly reducing the deposit required to buy a property. The continuation of low interest rates also means buyers can afford more expensive properties, although affordability criteria has been tightened up over the past year by wary lenders.
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.
For further advice on how to sell your house before the stamp duty holiday comes to an end, read out article "How to move house quickly: 5 ways to beat the stamp duty holiday deadline".
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