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Will UK house prices drop in Q4 of 2021?

Will UK house prices drop in Q4 of 2021?
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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.

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 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.

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.

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