Will house prices fall in 2021? Sale price rise explained - and if values will drop after stamp duty holiday ends

House prices have seen an increase of 8.6% in the last year, new data has shown.

Figures published by the HM Land Registry reveal the average property in the UK is now valued at £250,341, according to the government’s House Price Index.

Housing market experts say it is the highest annual rate of growth since 2014 - and the first time average prices have surpassed the quarter-of-a-million pound mark.

A record number of house sales - 190,980 - were also completed in March when the stamp duty holiday was initially expected to end, research from the Office of National Statistics found.

The stamp duty holiday has served to stimulate the market despite social restrictions brought on by three national lockdowns in 12 months amid the Covid pandemic.

So what does the future hold for house prices after the stamp duty holiday extension winds down in England and Northern Ireland?

Breakdown of UK house prices

The average house price across the UK has steadily risen across all four nations over the past 12 months, with England seeing the highest increase (8.7%) at £268,000.

The highest annual growth in average house prices came in the North West (11.9%) at £184,351, while London recorded the lowest (4.6%) at £496,269.

The North East continued to have the lowest average house price of any English region at £138,000, but reported an above UK average increase of 9% in the last year.

In comparison, the average house price in Wales increased by 8.4% to £180,000, in Scotland the average rose by 8% to £162,000 and Northern Ireland saw a 5.3% hike to £148,000.

‘Market to remain robust’

Mike Scott, chief analyst at estate agency Yopa, said the figures have been “boosted by buyers rushing to beat the deadline and avoid paying stamp duty”.

“But they are nevertheless very strong numbers,” he said.

The stamp duty holiday in England and Northern Ireland will be scaled back from 1 July 2021 before the tax break ends altogether on 30 September 2021.

Mr Scott does not expect the end of the stamp duty holiday to “amount to more than a minor bump in the road” for the housing market thereafter.

He said: “There are many other factors that will continue to push up prices this year, including: shortages of homes for sale, big increases in average household savings over the past year, people’s new property needs in the post-pandemic world, Government backing for 95% mortgages, and a general mood for a fresh start in life after the lockdowns finally come to an end.

“As a result, we expect the market to remain robust and prices to continue rising well into the second half of this year. We can expect a hot summer for the UK property market.”

‘Demand is outpacing supply’

Nitesh Patel, strategic economist at Yorkshire Building Society, said “buying behaviour continues to be dominated by the pursuit for space”.

He said: “All the indications are that it continues to be a seller’s market, with demand outpacing supply, and too few properties coming on to the market to keep up with buyer demand. Available properties appear to be getting snapped up quickly, adding upward pressure on prices.”

Figures show sales of detached homes rose by 9.1% in the year to February 2021, in contrast with flats and maisonettes, which saw a 6.7% increase over the same period.

“With the stamp duty relief in place in its current form until the end of June, and the jobs market fairly resilient, we don’t expect the housing market dynamics to change anytime soon. As a result, we expect price momentum to continue for a few more months.

“However, the jobs support scheme concludes in September and prices rising at a faster pace than salaries means affordability will become an issue for some buyers – so at this point, we are likely to see housing market activity cool,” added Mr Patel.

Are you sitting on £50,000 equity?

Gráinne Gilmore, head of research at Zoopla, said “soaring” buyer demand and “constrained supply of homes for sale is continuing to put upwards pressure on pricing”.

Buyers are also reassessing their housing needs.

Many more people are weighing up whether they will be commuting or working from home as lockdown rules ease – and what impact this might have on the need for more space inside or outside for home offices.

Ms Gilmore said buyers understanding the true value of their home will also help inform their decisions.

“Our analysis shows that only one in three people have an accurate idea of the worth of their home, with 45% of home-owners undervaluing their property and sitting on nearly £50,000 of hidden equity,” she said.

“Buyer demand, which soared in early March after the Budget and when children returned to school, has been running far higher than the supply of homes being listed for sale.

"This supply/demand imbalance is putting upward pressure on prices, and this trend is likely to support price growth for some time yet, although potentially a more modest rate of growth as we move through the rest of the year, as although we are finally emerging from lockdown, the route to a full re-opening of the economy and unwinding of support measures is unlikely to be simple or smooth."