U.K. House Prices Set for 14% Drop Next Year as Support Ends

U.K. house prices are set to plunge next year as government support measures to kick-start the economy after lockdown expire.

Average house prices will fall by nearly 14% from 2020 levels, according to the Centre for Economics and Business Research. The decline will begin toward the end of this year and continue in the first half of 2021, though a brief spike is possible when a temporary sales tax break ends in March.

The U.K.’s residential property market has so far defied the economic fallout from Covid-19 after the government effectively froze the market for about six weeks through mid-May as part of its efforts to slow the outbreak. House prices rose in August by the most in 16 years, driven by the tax break and demand that built up during lockdown, according to Nationwide Building Society.

Yet most of the factors pushing prices higher, including the tax relief, are transitory in nature, according to a CEBR report on Monday. A key government program that has supported 9.6 million jobs, helping to sustain demand in the real estate market, is scheduled to end next month. And rules curtailing repossession of properties, which have constrained supply and boosted prices, are also set to be lifted.

That could expose the housing market to the full brunt of the recession, with the U.K. on course for more than twice as many job losses in the coming months than in the recession following the financial crisis, according to the Institute for Employment Studies. Risks facing the economy include mass job losses when wage support is withdrawn, renewed curbs to tackle a rise in infections and the possibility of a disorderly split from the European Union.

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