Will UK house prices drop in Q4 of 2021?

The Office for National Statistics (ONS) has released house price data for July 2021. Does it show a drop in house prices? Will prices drop in Q4?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Sold sign displayed outside a terraced house

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Office for National Statistics (ONS) has released House Price Index data for July 2021. The data indicates that the average house prices in the UK were up £19,000 from the same time last year – an 8% increase. While this may seem like a positive headline, it’s lower than the annual increase from June 2020 to June 2021 (13.1%). The average house price in July 2021 was also £9,000 lower than it was in June 2021 (£265,000).

According to Sarah Coles, personal finance analyst at Hargreaves Lansdown, this was to be expected. She explains: “The market paused for a breath in July, as we passed the Stamp Duty holiday deadline.”

So is the drop in house prices just a blip? Or will they drop further in Q4? I take a look.

[top_pitch]

Is the UK House Price Index accurate?

The UK House Price Index (UK HPI) is considered the most accurate index because it sources its statistics from registration data provided by HM Land Registry, Registers of Scotland and Land and Property Services Northern Ireland.

This doesn’t mean that other house price indices aren’t accurate. Check the gov.uk website for a comprehensive table comparing the different measures used by various indices.

Are house prices in the UK falling?

Let me first point out that though the UK HPI is considered the most accurate measure of house prices, it releases data lagged by two months. This is because it takes time to collect and process the data.

For this reason, by the time the ONS releases data, other indices, such as Halifax, have usually already released the previous month’s house price data.

So while the UK HPI indicates average house prices were falling in July, Halifax has since released house price data for August 2021 that indicates house prices are increasing, though slowly.

[middle_pitch]

Will house prices drop in the UK in Q4?

The short answer is that the future is uncertain, and no one can be sure. However, there are a few factors that may influence the direction of house prices.

Evidently, the end of the Stamp Duty holiday resulted in a month-to-month drop in the average house price. This was expected as buyer demand waned once the Stamp Duty holiday began to taper.

The Halifax house price index indicates that house prices increased slightly in August 2021. This shows that there are still factors promoting increases. Buyers can still save up to £2,500 under the tapered Stamp Duty holiday that ends on 30 September 2021. The rush to avoid missing the deadline could have contributed to higher demand, increasing house prices.

Let’s not forget that buyers are looking for more space, mortgage rates are low and government schemes are encouraging first-time buyers to get onto the property ladder. These factors continue to fuel demand that is not being balanced by supply. As a result, house prices continue to rise.

However, ONS house price data indicates that the number of new builds was up 12% and previously-owned properties 9.2%. If this trend continues, the imbalance between supply and demand could be corrected, leading to lower house prices.

There are other factors that could yet impact house prices too. As Sarah Coles explains, “Higher unemployment or new lockdowns could damage confidence in the market. Then again, higher inflation could persist and persuade the Bank of England to revisit interest rates sooner rather than later next year, which would mean buyers face higher mortgage payments, which in turn could hit the market.”

Understandably, it’s difficult to predict how Q4 will pan out. We’ll just have to wait and see.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »