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Trends to watch out for in the property market in 2021

As COVID-19 continues to shape the way we buy and sell property, here are some things to watch out for in the property market over the coming year.

2021 housing market image

Unlike the first nationwide lockdown in spring 2020, the property market has been allowed to stay open through winter 2021. Despite the government’s “stay at home” message at the start of this year, viewings are permitted to continue and estate agents are mostly staying open.

Despite the industry being excluded from the lockdown, there are signs that the market is slowing. The number of agreed home sales that have fallen through has risen from 17% last July to over a quarter (28%) in December, according to property site Rightmove.

With household finances stretched for millions of people across the country, and those not in secure jobs struggling to build their deposits, things are looking tough. But there may be glimmers of hope as the NHS continues its efforts to roll out coronavirus vaccines.

Here are some possible things to look out for over the coming months, as the property market reacts to several key factors shaping consumer behaviour.

More mortgage deals for first-time buyers?

At the height of the first lockdown last year it was exceptionally difficult for first-time buyers to find mortgages with high loan-to-value (LTV) percentages. 

Mortgage lenders removed deals with higher LTV loans from the market in response to the financial turbulence caused by the pandemic. 

The number of mortgages available to first-time buyers with deposits of 5% or 10% of their desired home’s value dropped off dramatically since March, according to property website Zoopla. 

When we checked on 4 August, there were only 27 different first-time buyer mortgage products available for people borrowing 95% of their home’s value.

That’s down from 391 at the beginning of March, according to financial information group Moneyfacts.

But since then, the picture has started to improve, with several lenders returning to offer 90% LTV deals or better.

While this increase in supply is not guaranteed to last, it’s certainly looking for now as if some of the barriers faced by those looking to get onto the property ladder are slowly being lowered.

Compare first-time buyer mortgages

Mortgage rates to stay low 

The Bank of England (BoE) base rate is unlikely to increase greatly from its current historic low level over the next few months, which will help continue the trend of low mortgage rates.

The BoE base rate influences all loan and mortgage interest rates in the UK. When the BoE decreases the bank rate, interest rates usually decrease as well. This means borrowing gets cheaper for both house buyers and banks.

For those able to fund the deposits needed for even the highest LTV mortgages on the market, low mortgage rates mean more manageable monthly payments.

But this is only good news if you’re able to provide a deposit, as many first-time buyers hit by the impact of the pandemic will struggle to put aside the sums needed without help from family.

Prices may dip after stamp duty holiday ends

Chancellor Rishi Sunak’s decision to unveil a major stamp duty cut last July has had a visible impact on the house prices. The lender Halifax reported that the average house price climbed by £15,409 between June and November last year.

However, the stamp duty holiday is set to last until 31 March 2021. Some experts believe that if the tax break is not extended, demand is likely to dip in the middle of spring. 

This may well lead to lower asking prices, depending on where you’re looking to buy.

For full details on how stamp duty works, read our ‘How much does it cost to buy a home?’ guide 

Negative equity on the horizon?

Sudden dips in house prices could increase the number of homeowners driven into negative equity

Households go into negative equity when the remaining amount they have to pay on their mortgage is greater than the market value of their property. 

If you bought your home with a small deposit and a high LTV mortgage, this would make you more vulnerable to getting into negative equity as a result of even small house price dips.

Case Study

Ian and Jane buy a 3-bedroom house for £200,000. They put down a 5% deposit, or £10,000, up front. The mortgage they take out is therefore a 95% loan to value (LTV) of £190,000

- Within 2 years of buying the house, house prices drop by 20%

- Their home is now worth £160,000, or £40,000 less than when they bought it.

- They have paid off £10,000 of the mortgage since they bought it 

- This means their outstanding mortgage is £180,000

This home is now worth £20,000 less than their mortgage and they are now in negative equity.


Find out more about getting a mortgage during the Coronavirus pandemic.

The Resolution Foundation, a charity that researches the issues facing low income families, has suggested that these predicted price falls could mean more existing homeowners becoming trapped in negative equity.

If you find yourself in this position, the government-run Money Advice Service has guidance on what you can do about it.

Had a mortgage payment holiday? It could be tougher to remortgage

When the COVID-19 outbreak hit the UK, the government introduced rules allowing homeowners to take mortgage payment holidays, as part of measures to support people’s incomes during lockdown. 

When the government first introduced rules instructing banks and building societies to offer monthly repayment holidays to those who needed them, it promised that these payment breaks should not be reflected in customers’ credit files.

This is important because a person’s credit file contains key information that banks, credit companies and other financial services providers use to determine whether to offer credit. 

However, tens of thousands of those who took advantage of the ability to pause their monthly home loan payments are reportedly finding that their payment holiday has now made it harder to remortgage.

This is because when you apply to take out a loan, a credit card or even a mortgage, your credit file is not the only information about you that lenders use when determining whether to grant a loan.

They can use information from a range of sources, including your bank statements, to check if you have been able to make regular payments on any existing debts and obligations. Lenders may be able to see if a person has taken a payment holiday.

Sadly, this means that if you took a mortgage holiday, you’re likely to be less attractive to lenders and the mortgaging options open to you will shrink.

We’re likely to see reports this year from those who are having difficulties remortgaging because they took advantage of loan payment breaks over recent months.

If you're hoping to purchase a new property in 2021, it is important that you compare mortgages, to find one that is the best for your individual circumstance.

If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs.