Press release

31 Jul 2020 London, GB

Nationwide reports UK house prices rose 1.7% month-on-month and 1.5 % year-on-year in July – EY ITEM Club view

The Nationwide reported house prices rebounded 1.7% month-on-month in July following marked declines of 1.6% in June and 1.7% in May.

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  • The year-on-year change in house prices moved back into positive territory in July, rising 1.5%; this followed a dip of 0.1% year-on-year in June which had been the first annual decline in house prices since December 2012
  • House prices appear to have been lifted in July as housing market activity was revived by the easing of restrictions in England from mid-May. Restrictions for the Welsh, Northern Irish and Scottish (at end of month) housing markets eased during June
  • There has been a clear pick-up in housing market activity following the easing of restrictions. Bank of England data show mortgage approvals for house purchases rose to 40,010 in June from May’s record low of 9,273 while survey and anecdotal evidence for July has shown improvement
  • Housing market activity pick-up is likely to continue in the near term – supporting prices – as a result of the raising of the Stamp Duty threshold to £500,000 along with the release of some pent-up activity following the easing of lockdown restrictions
  • Nevertheless, the EY ITEM Club suspects the upside for the housing market will be limited due to challenging fundamentals for consumers
  • 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 rise in unemployment. House prices could be around 3% lower than now by the end of the year
  • The EY ITEM Club expects housing market activity to gradually improve in 2021 as the UK’s economic recovery gains traction, the labour market starts to recover and consumer confidence improves. Very low borrowing costs should also help with the Bank of England unlikely to lift interest rates from 0.10% for some time
  • Even so, the EY ITEM Club expects house price gains to be no more than 2-3% in 2021

Howard Archer, chief economic advisor to the EY ITEM Club, says:

“The Nationwide reported house prices rose 1.7% month-on-month in July. This followed month-on-month declines of 1.6% month-on-month in June and 1.7% in May, which had been the first monthly drops on the Nationwide measure since last September and the largest declines since February 2009.

“The year-on-year change in house prices moved back into positive territory in July, rising 1.5%; this followed a dip of 0.1% year-on-year in June, which had been the first annual declines in house prices since December 2012. The annual rate of increase had previously more than halved to 1.8% in May from 3.7% in April, which had been the highest since February 2017 and up from an 8-month low of just 0.2% in September 2019.

“Despite July’s rise, house prices were down 1.3% in the three months to July compared to the three months to April; this was the largest three-month/three-month decline since December 2010.”

Stamp duty threshold increase likely to offer near-term support but this will be limited

Howard Archer continues: “The raising of the Stamp Duty threshold to £500,000 from mid-July until 31 March 2021 should provide some near-term support to housing market activity.

“Early survey evidence from Rightmove suggests that there has been an initial beneficial impact from the Stamp Duty move on housing market activity. Rightmove reported that the number of sales agreed in England increased by an annual 35% in the five days after the Chancellor’s announcement on July 8.”

Outlook for the UK housing market

Howard Archer comments: “Housing market activity may well see a pick-up in the near term providing some support to prices, as a result of the raising of the Stamp Duty threshold, along with the release of some pent-up activity following the easing of lockdown restrictions. The easing of lockdown restrictions affecting the housing market has occurred later in Wales, Scotland and Northern Ireland than in England, so there may be some catching up there. This could result in house prices firming modestly over the next few months after falling back in recent months.

“Nevertheless, the EY ITEM Club suspects the upside for the housing market will be limited due to challenging fundamentals for consumers. Many people have already lost their jobs, despite the supportive Government measures, while others will be concerned that they may very well still end up losing their job once the furlough scheme ends. Additionally, 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.

“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 rise in unemployment, which will not only adversely affect the fundamentals for house buyers but also likely heighten consumer insecurities and fuel caution on committing to buying a house. Consequently, the EY ITEM Club predicts that the housing market could struggle late on in 2020 with house prices coming under downward pressure.

“The EY ITEM Club suspects that house prices could well be around 3% lower than now by the end of the year.

“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 the Autumn budget.

“The EY ITEM Club does expect housing market activity to gradually improve as 2021 progresses and the UK’s economic recovery gains traction, the labour market starts to recover and consumer confidence improves. Very low borrowing costs should also help with the Bank of England unlikely to lift interest rates from 0.10% for some time. Even so, expect house price gains to be no more than 2-3% in 2021.”

UK housing market picks up after coming to a standstill from late March to mid-May

Howard Archer adds: “The housing market was essentially brought to a standstill from late-March through to mid-May by the lockdown.

“Relief for the housing market in England came from an easing of restrictions on 13 May under which buyers and renters can once again view properties physically, arrange removals and move home. The easing of restrictions for the Welsh, Northern Irish and Scottish (at end of month) housing markets occurred during June.

“There does appear to have been an immediate marked pick-up in housing market activity following the easing of restrictions. In addition to the latest data from the Bank of England on mortgage approvals for house purchases, the monthly RICS residential survey for June observed that its results pointed to “a recovery emerging across the market, with indicators on buyer demand, sales and fresh listings all rallying noticeably following the lockdown related falls beforehand. That said, respondents still appear relatively cautious on the prospect of this improvement being sustained over the longer term, as twelve-month sales expectations are now marginally negative.”

“Additionally, survey and anecdotal evidence for July has shown improvement in housing market activity.”