Can UK House Prices Defy Pandemic Economic Reality?

Matthew Feargrieve
7 min readApr 5, 2021


Investment management consultant MATTHEW FEARGRIEVE considers whether the miracle rise in UK house prices during the COVID-19 pandemic is truly sustainable following the withdrawal of the furlough schemes and the stamp duty relief.

Matthew Feargrieve asks if UK property market will crash

The estate agent hype is as shameless as the price rises are astounding.

Property prices are up considerably on 2020 and 2019 figures, and agents are reporting the busiest first calendar quarter in years, with a 50 per cent increase in transactions in February compared to the same time last year. Fuelled by the stamp duty holiday, which offers buyers tax savings of up to £15,000, house prices have risen steadily, month on month, since chancellor Rishi Sunak introduced the tax holiday in the spring of 2020.

Despite a drop of 0.2% in March, brought about by anticipation of the end of the stamp duty holiday planned for 31 March, prices are now (Spring 2021) some 6 per cent higher than this time last year. With the warmer months of spring traditionally marking the start of the property buying season, and the news in late March that the buyer tax holiday will be extended until 30 June, the demand for homes and the attendant price buoyancy is expected to last at least until then.

Hence the uncontrolled estate agent hype surrounding the market right now.

With buyer demand reaching mania in some parts of the UK, with wealthy top-of-the-ladder homeowners buying favours from agents by offering a “buyer premium” of undisclosed amounts (on top of the purchase price, that is), bidding wars pushing up purchase prices considerably in excess of asking prices and housing demand outstripping supply, estate agents are cock-a-hoop.

One of the UK’s leading online property markets, Rightmove, sent subscribers like me an email prior to the Easter holiday, informing them of an unprecedented “rush to Rightmove” as the website registered more clicks in one day than ever before. There followed a (slightly patronising) explanation of why people traditionally use the long Easter weekend to get out and look at property (apparently), after having been cooped up all winter (presumably having nothing better to do with themselves at the start of springtime).

Adding fuel to the property inferno is the government’s Help to Buy scheme, which enables those first-time buyers able to stump up 5 per cent of the deposit to borrow between 20 and 40 per cent of the purchase price from the government. (We have commented previously on the dangers for first time buyers that lurk within this scheme, which you can read about here.)

The hype from all parties with a commercial interest in the UK property market — agents, sellers, brokers, mortgage lenders, etc — is unrelenting and shameless. And so you would be forgiven for getting carried away by the hype and for joining the “rush to Rightmove”.

To buy now would undoubtedly be to buy in a rising market. To have an offer accepted now would, in some parts of the UK, leave you with a doubtful chance of completing the purchase transaction prior to the end of the stamp duty holiday, currently scheduled for the end of June.

In short, to involve yourself at all with the UK property market at any time between now and the end of June (assuming no further extension of the stamp duty relief, that is) would be to embroil yourself in an inflated bubble market, that can only end one way when the government props are pulled out from underneath. Right?

When we last wrote about the state of the UK housing market, in our blog What Next for UK House Prices, it was to comment on the likely effect on house prices of the stamp duty holiday being extended for an additional three months, from end-March to end-June. Estate agent hype was already rife, and we examined some of the bare-faced assertions being made by property professionals and other interested parties about why it was the Right time to Buy. We discussed how, on the contrary, the fundamental underlying economic essentials and other factors meant that quite the opposite was true. We urged would-be buyers to look beyond the hype and to consider some basic facts of life before joining the rush. You can read more about this by clicking here.

Since we wrote that article in March, two things have changed. First, unemployment forecasts have been updated. Secondly, data about the housing market in London have been released. Both sets of data have a profound bearing on the direction and prospects of the UK property market.

UK unemployment forecasts

Over the three months to January, unemployment in the UK fell from 5.1% to 5%. Much was made of this encouraging headline. But the backdrop to this is that unemployment is expected to rise to 6.5% by the end 2021, once the government’s furlough support schemes — seen by many to be artificially propping up employment levels, just as the stamp duty holiday may be seen to be propping up the property market — are brought to an end. The government spending of billions of tax pounds simply cannot go on indefinitely.

As chancellor Sunak has repeatedly pointed out, all this money has to be paid by somehow, sometime, by the UK taxpayer. The withdrawal of both schemes — furlough and stamp duty relief — will inevitably have a dampening effect on buyer demand and families’ appetite to move home, as the reality of a world without furlough and juicy tax breaks finally kicks in.

So, a drop-off in house sales should be expected after 30 June — assuming the stamp duty holiday is not extended further, and there is a broad consensus that the government will not — indeed, cannot — extend it further.

But how bad will that drop-off be? Will it be more than a normalization of property valuations, something more like a crash?

It is difficult, on any rational outlook, to conceive of house prices being self-sustaining at current levels after the government kicks away the crutches of stamp duty relief and furlough pay. Just think about the economic fundamentals at play. During the biggest economic slump in modern history, when nine million people were sitting idle at home, their wages paid by the taxpayer, we have had a miracle property boom in which prices have risen 6 per cent. Something isn’t right. Something has got to give.


As ever, London drives the rest of the country’s economy. This has always been true in the housing market, and the (overstated) exodus of workers from the capital doesn’t make this any less true. A market crunch in London likely results in a crunch across the rest of the UK.

London is particularly vulnerable to a depression in its residential property market because the price of houses in the city, as opposed to flats, rose particularly sharply over 2020, while the population of the capital is estimated to have fallen sharply as foreign workers appear to have left in the pandemic. With the vast majority of the capital’s population living in flats, and a number of these currently tenantless, the surge in the price of its much smaller stock of houses last year will have to be corrected.

A recent report by the London School of Economics opines that there is a “significant risk of [government] policy trying to prop up house price growth [….] together with the fact that the stamp duty holiday disproportionately boosted more expensive houses and housing markets, we would expect the [….] situation of a housing market downturn”. This downturn would, in the view of the LSE, be accelerated by an economic downturn.

Given that the pandemic has brought about the deepest recession in the UK for three hundred years, some economic downturn seems highly likely. You don’t have to be an economist to think that. In such circumstances, could the miraculous hikes in house prices possibly be sustained? The LSE’s report goes on to state that, even if the stamp duty and/or furlough schemes were extended (which the LSE considers highly unlikely), the visible effects of the coming economic downturn would merely be deferred.

The support, the props offered by the government — furlough and property tax breaks- are sticking-plasters. They do not, cannot, heal the economic wound that has been, and will be, inflicted by the lockdown of our national economy during the pandemic.

What Next for the UK Property Market?

There are those who, with some justification, believe that no UK government will ever allow the property market to collapse, that government intervention is guaranteed when the market starts to drop. After all, the country’s retail banking sector depends on people borrowing mortgages, and being able to repay them. Buying property has become, in the UK (perhaps uniquely in the world) a safe, one-way bet.

That may be true. What is far harder to accept is the blind, unrelenting hype, and the assertion that UK house prices are sustainable at current levels. The miraculous gains of 2020 will be subject to an inevitable correction as post-pandemic economic reality sinks in.

The harsher that economic reality, the more severe the correction; and the harder our collective arrogance and hubris about property “ownership” - two distinctly unappealing traits that must be unique to the British more than to anyone else in the world - will be punished.

MATTHEW FEARGRIEVE is an investment management consultant. You can read his personal finance blog here and see his Twitter feed here. You can read his property blog here.

Matthew Feargrieve investment management consultant
Matthew Feargrieve, investment management consultant



Matthew Feargrieve

Matthew Feargrieve is an investment management consultant with more than twenty years experience of advising fund managers.