For three months this year, the property market in the UK all but closed. With buyers unable to view homes, and surveyors forbidden from undertaking valuations, transactions fell sharply, and annual house price growth dipped below zero earlier this summer.
However, since the government eased lockdown restrictions, there has been a mini housing market boom with UK house prices hitting a new record high.
Nationwide Building Society said August brought the highest monthly price rise for 16 years, defying the economic crisis caused by the coronavirus pandemic as the average price of a property rose 2% from the previous month to £224,123.
So, what’s happening to house prices? Why are prices booming? And what’s the medium-term outlook?
UK house prices hit record highs
Over the past 12 months, the Nationwide reports that UK house prices have jumped by 3.7%, with the average property now worth £224,123.
This is despite the UK suffering the deepest recession since records began after unprecedented restrictions on movement. That same 12-month period also included prolonged uncertainty over when and how the UK would leave the European Union, as well as a general election.
Source: The Guardian/Nationwide house price index
The Nationwide said the recovery in housing market activity had been “unexpectedly rapid”. The lender said the increase in August was the highest since February 2004, when house prices rose by 2.7%. As a result, annual house price growth accelerated to 3.7%, from 1.5% in July.
3 reasons UK property prices are rising sharply
Experts have suggested three reasons why property prices are rising so sharply since lockdown.
1. The Stamp Duty holiday
Back in July, the Chancellor announced that, to boost the flagging housing market, he was implementing a Stamp Duty holiday until March 2021 on properties valued up to £500,000.
We’ve previously looked at how the Stamp Duty holiday could save you up to £15,000 on costs if you complete before 31st March 2020, and it’s clear that this tax break is encouraging many buyers into the market.
National estate agent Savills reports that new-build buyer enquiries increased by 51% on the day of the Stamp Duty holiday announcement and, in the week to 28th July, demand was still 15% higher than it had been before the cut.
2. Changed demand for homes
As millions of workers continue to work remotely, Nationwide’s chief economist, Robert Gardner, believes that ‘behavioural shifts’ may have also boosted activity. We’ve already looked at what you should consider if you’re thinking about moving out of the city.
Research issued by Savills last month found 62% of the buyers and sellers it surveyed said that garden or outside space had become more important, rising to 71% for those in London.
Meanwhile, 57% said a separate space to work from home was more important than pre-lockdown, rising to 70% in the capital.
Demand has been high for coastal and country properties, while a home office has become a ‘hot commodity’, according to estate agent Barrows and Forrester.
3. Pent-up demand
With uncertainty surrounding Brexit and the general election weighing on the housing market even before coronavirus, it’s perhaps no surprise that the lid has been lifted on the pent-up demand for homes.
According to data from the property listing website Rightmove, more homes in Britain are selling within a week of coming to the market than at any time over the past decade.
The number of homes being “sold, subject to contract” after seven days or fewer is 125% higher than the same period last year and 28% higher than the previous high recorded in February 2016. It was the highest since Rightmove started collecting the data a decade ago.
Experts cautious on the medium-term outlook for house prices
While house prices and the volume of sales are booming, many experts are warning that the sector could face a ‘reality check’ in 2021 and beyond.
The government’s official forecaster, the Office for Budget Responsibility, has predicted house price falls, particularly next year.
Even the most optimistic predictions believe that the market will only continue to boom between now and next spring, as buyers rush to complete before the Stamp Duty holiday ends. Beyond this, industry experts agree that the question isn’t if prices will fall — but by how much.
As the furlough scheme winds down, UK unemployment is expected to rise sharply, leading to an increase in the supply of houses as people rush to sell if they can no longer afford their mortgage repayments.
As the economic outlook remains highly uncertain, we expect house prices to stabilise and the annual rate of growth to reduce. Much will depend on the severity of the economic effects of the end of furlough and mortgage payment holidays, but a big hit to the economy could well dampen the market once the Stamp Duty holiday ends.
If you’re considering buying a property and taking advantage of the Stamp Duty holiday, we can help you to get the finance you need. Email [email protected] or call us on +44 (0) 20 3786 7270.
