December of this year is to mark 2 years since the initial outbreak of the Coronavirus pandemic. It’s affected all aspects of life, including the economy and the housing market. How exactly has Covid affected London’s house prices, and what could be the long-term consequences?

In 2020, spending plummeted as businesses closed and consumers stayed at home. The UK economy experienced negative growth of over 9% in 2020, and it was expected that a decline in spending (and an increase in interest) could cause house prices to fall. However, the housing market continued to change in unexpected ways.

As the economy recovered in the latter parts of 2020, and spending increased, house prices also rose. House prices rose to £526,000 in London by August 2021, although a June-July stamp duty holiday had reduced the peak of this increase. Properties in Sutton had an overall average price of £486,209. Overall, the price inflation of houses in the UK in 2021 was projected by the Office of Budget responsibility to be approximately 8.6%.

However, the OBR also predicts the rate of house price inflation in 2021 to reduce to about 3.3%. By 2026, it is projected to be about 3.5%- however, long-term predictions come with a large margin of error. After all, no one could have predicted Covid-19 lockdowns in March 2019.

This news comes amidst other developments in the economy. Inflation is set to continue at a relatively high rate of 4%, due to exorbitant spending as the economy recovers from the damages in 2020. As of the 4th November 2021, the Bank of England has confirmed that the base rate is approximately 0.1%. This is the lowest it’s ever been. How exactly could this affect house prices?

When interest rates are low, consumers are incentivised to spend instead of saving their money. Spending on houses increases, and demand increases. This causes house prices to inflate due to an increase in demand. If the current economic situation continues, house prices will likely continue to increase at a relatively high rate. This marks the continuation of a trend of rising house prices in London and the UK since 2000, with average house prices in London increasing from £125,000 at the turn of the century to £526,000 today.

Increasing house prices will be welcomed by existing homeowners, whose incomes and assets will increase as real estate prices and equities continue to soar. Landlords will also see their incomes from rent and buy-to-let continue to rise. However, for the third of the UK that does not yet own a home, rising house prices are bad news. Young people in particular will find it difficult to ascend the property ladder as mortgages continue to become out of reach for many.

 Although the situation seems to have de-escalated from 2020, the pandemic is not yet over either. With recent developments, such as the emergence of the South African Omicron variant, the housing market could change in even more unexpected ways in the year ahead.