House prices jump 5% on stamp duty holiday and lockdown itchy feet

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House prices had been forecast to fall after the lockdown property market freeze but have instead accelerated


The lockdown property market mini-boom has pushed house prices up 5 per cent on a year ago – the biggest jump since September 2016 – new figures from Nationwide show.

Britain’s biggest building society said the average price of a home across the country has now spilled over the £225,000 mark for the first time on its long-running index, to reach £226,129. 

The property market has been buoyed by Chancellor Rishi Sunak’s stamp duty holiday from July to the end of March next year, but had already seen a surge in activity after house hunters got the green light to get moving again in May.  

But economists at the EY Item Club warned the current rise in property prices will become ‘unsustainable sooner rather than later’ as mass job cuts loom, the stamp duty holiday ends and further lockdown-induced economic turmoil potentially takes hold. 

Meanwhile, estate agent Lucy Pendleton, who called a summer boom while most others forecast a bust, has said the market may have already hit its ‘peak’.

House prices had been forecast to fall after the lockdown property market freeze but have instead accelerated  

Nationwide’s report showed annual property inflation at 5 per cent, with the average home costing £10,777 more than a year ago.

It also looked at potential home buyers’ motivations, many of whom indicated they had lockdown itchy feet, with 35 per cent hoping to move to a different area and 30 per cent doing so to get access to a better garden or open space. 

The stamp duty holiday is adding to momentum by bringing purchases forward 

 Robert Gardner, Nationwide

‘The rebound reflects a number of factors,’ said Robert Gardner, Nationwide’s chief economist.

He added: ‘Pent-up demand is coming through, with decisions taken to move before lockdown now progressing. 

‘The stamp duty holiday is adding to momentum by bringing purchases forward. 

‘Behavioural shifts may also be boosting activity as people reassess their housing needs and preferences as a result of life in lockdown.’

Smaller cities and towns and the countryside hold a greater attraction across all age groups but the effect is most pronounced in the over-35s

Smaller cities and towns and the countryside hold a greater attraction across all age groups but the effect is most pronounced in the over-35s 

A drop in property inflation has been followed by a summer bounce driven largely by existing homeowners moving, as first-time buyers face tougher mortgage conditions

A drop in property inflation has been followed by a summer bounce driven largely by existing homeowners moving, as first-time buyers face tougher mortgage conditions

Estate agents report that family homes and the expensive properties are the busiest parts of the market, while first-time buyers are having their ambitions hit by a mortgage crunch.

According to separate recent data from NAEA Propertymark, nearly one in seven homes were sold in August for more than the asking price, which is the highest rate since November 2015. 

Gardner said the pandemic was encouraging people to move. Lockdowns and working from home have spurred many people to look for new properties with more space and a garden, while being less concerned about commuting distances for the time being. 

A quarter of people surveyed by Nationwide in London said they were moving as a result of lockdown, while a further 15 per cent of people in the capital admitted they were considering moving.

UK variations: A chart showing how house prices have changed in nations since 2015

UK variations: A chart showing how house prices have changed in nations since 2015

Despite a stronger-than-expected post-freeze property market having gained even more momentum over summer, many economists suggest house prices will be brought back down to earth over winter.

Clouds on the horizon include the end of the furlough scheme, job losses and those whose moves were stalled over spring falling out of the data.

Meanwhile, even optimistic estate agent Lucy Pendleton, who in April made a bold forecast that she expected ‘buyers and sellers to be stampeding back to the table at the earliest opportunity’, says rising house prices will stall. 

‘This is the peak but there will be no collapse,’ said the agent of James Pendleton estate agents.

This is the peak but there will be no collapse 

 Estate agent Lucy Pendleton

‘Three planets aligned to produce this stellar growth. Pent-up demand from lockdown has been followed by a wave of activity from those who realised they wanted a bigger property, and all this was dealt an extra dose of encouragement by the stamp duty holiday.

‘It can’t continue forever though, and it’s very likely indeed that we won’t see a higher annual growth rate this year.’

She added: ‘The market is strong but some vendors have mistakenly started to believe any property in any condition will sell. Those vendors have got the wrong end of the stick. Quality homes are selling but buyers are not being reckless and won’t pay top dollar for properties that need a lot of money spent on them.’

All regions across the country saw house prices increase between July and September, with the highest growth occurring in the South West, where annual price growth was 5.5 per cent.

A shortage of homes coming up for sale remains a problem in many parts of the country and continues to push prices up. 

The uptick in prices has also created a toxic situation for first-time buyers, who are increasingly finding themselves pitted against deeper-pocketed home-movers and  property investors looking to make the most of the stamp duty cut, at the same time as finance has got tougher for them.

Lenders have wielded the axe on the vast majority of high loan-to-value mortgage deals in recent months, leaving some first-time buyers priced out altogether. The number of 90 per cent mortgages has dwindled from hundreds on offer to a handful, with some going on sale only for short periods.

Nationwide's map shows where house prices have risen the most over the past year

Nationwide’s map shows where house prices have risen the most over the past year 

Regional shifts: Annual and quarterly house price fluctuations, according to Nationwide

Regional shifts: Annual and quarterly house price fluctuations, according to Nationwide 

Is the house price mini-boom tailing off? 

While the annual house price growth figures show a marked upturn in house prices, the month-on-month figure has stopped rising as steeply as before.

‘Amid the record highs, there are some hints that we could see the market starting to stabilise in the near future with the monthly growth rate slowing from 2 per cent in August to 0.9 per cent in September’, Nicky Stevenson, managing director at national estate agent group Fine & Country, said.

Meanwhile, estate agents have commented on property industry websites that in areas that have seen local lockdowns, demand has slowed dramatically. 

Howard Archer, chief economist at the EY Item Club, thinks the current spike in house prices is ‘unsustainable’ and will fizzle out once the realities of the impact of lockdown on the labour force and economic in the country become clearer.

Archer said: ‘Many people have already lost their jobs, despite the supportive Government measures, while others are concerned about possible redundancy once the furlough scheme ends. 

‘Separately, many incomes have been affected. Consumer confidence is currently still low compared to long-term norms and many people are likely to remain cautious for some time to come when making major spending decisions, such as buying or moving house.

Affordable? A chart showing the UK house price to earnings ratio in Britain since 1990

Affordable? A chart showing the UK house price to earnings ratio in Britain since 1990

‘The EY Item Club suspects that the housing market is likely to come under pressure over the final months of 2020 when there is likely to be a marked rise in unemployment as the furlough scheme draws to a close in October. 

‘While the Chancellor’s Job Support Scheme announced in late-September should have some degree of limiting impact on the increase in unemployment in late-2020/early-2021, a significant rise in unemployment still looks more likely than not. 

‘This will not only adversely affect the fundamentals for house buyers, but also likely fuel caution on committing to buying a house. There is also likely to be a fading of the pent-up demand effect on activity.’

Archer added: ‘The EY Item Club expects the housing market to remain under pressure over the early months of 2021, although some temporary support in the first quarter will likely come from buyers looking to take advantage of the Stamp Duty threshold increase before it ends on 31 March – although there is always the possibility that the Chancellor could extend it in next year’s Budget.’ 

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