7 factors that will shape the housing market in 2021

7 factors that will shape the housing market in 2021

By Annabel Dixon

Goodbye 2020, hello 2021! From Covid-19 vaccines, to policy changes, here are the top issues that are set to impact housing over the next 12 months.

With the outbreak of the coronavirus pandemic, 2020 has been an unprecedented year.

There are several factors that will shape the housing market in 2021, with the pandemic adding to the uncertainty, according to our House Price Index.

So what will influence the homes we buy or rent – and how?

Here's what you need to keep an eye on.

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1. Covid-19 vaccines

Progress on the eagerly-awaited Covid-19 vaccines will play a key role in determining how quickly restrictions can be relaxed and ‘normal’ life resumed in 2021.

Zoopla’s research & insight team (R&I) expects the roll-out of a vaccine to support a return towards normality in the second half of the year.

Check out our coronavirus hub to get the latest news and advice on how the pandemic could impact you.

Coronavirus: Get the latest property news and information

2. Economic outlook

Economic growth is set to rebound in 2021, supported by an array of government measures.

However, the unemployment rate is forecast to edge towards 6.5%, with income growth muted.

R&I expects higher unemployment to hit housing market sentiment and general levels of activity throughout the year.

3. Trade deal with Europe

With the Brexit transition period ending on 31 December 2020, negotiations on a trade deal look set to go to the wire.

Without a comprehensive free trade deal in place, R&I assumes some form of agreement will be struck to keep the flow of goods running, but with possible impact on economic growth and trade in the new year.

4. High loan-to-value mortgages

Lenders cut the availability of mortgages for borrowers with small deposits in 2020. This has taken its toll on first-time buyers in particular, with half of aspiring homeowners using loans of 85% loan-to-value (LTV) or more.

A continued lack of finance at higher LTV levels would impact housing chains and create further downside risks to the market outlook.

R&I expects lenders to dip their toes back into the water of high LTV mortgages at the start of 2021, but not initially at the scale and competitive pricing seen in recent years.

5. Lender support

The number of mortgage borrowers forced to sell their home has a knock-on effect on the outlook for house prices.

But R&I expects continued support for borrowers to limit the number of forced sales.

The mortgage payment deferral scheme has already been extended to March, and there’s an expectation that lenders will continue to pursue forbearance policies – in other words, they will allow borrowers to pause or cut their mortgage payments for a period of time – in response to rising arrears rates in the first six months. 

6. Policy change

Announcing his one-year spending review, chancellor Rishi Sunak warned that the "economic emergency" caused by pandemic had only just begun.

So tax increases and the impact on household finances is an important factor as the government looks to cut record debt.

Higher rates of capital gains tax that would affect investors and second homeowners have been rumoured after Sunak asked the Office of Tax Simplification to carry out a review of the system.

Further policy changes to support the housing market and economy can’t be ruled out in 2021.

7. Lifestyle changes and evolved working practices

The first national lockdown led many people to carry out a once-in-a-lifetime review of their home and lifestyle and unleashed pent-up demand to move.

And these trends, combined with changes to working patterns, are set to continue to fuel activity in the housing market in 2021.

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