Press release

19 Aug 2020 London, GB

Annual UK house price inflation dipped to 2.6% in April, according to Land Registry/ONS stats – EY ITEM Club comments

The Land Registry/ONS has resumed publishing house price data having temporarily suspended the series due to the lack of housing market activity between March and May.

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Related topics Growth COVID-19
  • The Land Registry/ONS has resumed publishing house price data having temporarily suspended the series due to the lack of housing market activity between March and May. However, the initial release only covers house prices up to April
  • The Land Registry/ONS measure of house price inflation is based on completed transactions. The ONS says that, typically, a house purchase can take six to eight weeks to reach completion. Therefore, the price data feeding into the April 2020 UK house price index will reflect those completions that occurred before the COVID-19 lockdown imposed on 23 March. More recent Nationwide and Halifax data show a firming of house prices in July
  • The Land Registry reported annual house price inflation moderated to 2.6% in April from a two-year high of 3.5% in March as prices fell an unadjusted 0.2% month-on-month
  • The year-on-year increase in London prices slowed to 2.3% in April from 5.2% in March (the highest since November 2016) as they fell 1.6% month-on-month
  • There has been a pick-up in housing market activity following the easing of restrictions. This trend has been reinforced by the Chancellor raising the Stamp Duty threshold to £500,000 from mid-July through to 31 March 2021
  • The immediate future could see further pick-ups in housing market activity and house prices. However, the EY ITEM Club suspects the upside for the housing market will be limited due to challenging fundamentals for consumers
  • Despite the current firming in activity and prices, the EY ITEM Club suspects that the housing market is likely to come under pressure over the final months of 2020 and start of 2021 when there is likely to be a rise in unemployment
  • 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 suspects that house prices could be around 3% lower than now around the turn of the year
  • The EY ITEM Club expects housing market activity to gradually improve as 2021 progresses, while the UK’s economic recovery gains traction, the labour market starts to recover and consumer confidence improves. Very low borrowing costs should also help matters with the Bank of England unlikely to lift interest rates from 0.10% during 2021. 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 Land Registry/ONS has resumed publishing house price data having suspended the series for a while, due to the lack of housing market activity between March and May caused by lockdown restrictions. However, the initial release only covers house prices up to April.

“The Land Registry/ONS measure of house price inflation is based on completed housing transactions. The ONS observed that, typically, a house purchase can take six to eight weeks to reach completion. Therefore, the price data feeding into the April 2020 UK house price index will reflect those completions that occurred before the COVID-19 lockdown.

“The Land Registry/ONS reported the year-on-year increase in house prices dipped to 2.6% in April after rising to a two-year high of 3.5% in March from 1.9% in February. It had strengthened to March’s high from 0.6% in August 2019, which had been the lowest rate since October 2012.

“House prices fell an unadjusted 0.2% month-on-month in April. This followed an increase of 1.3% in March and a dip of 0.4% in February. Prices had risen 0.7% month-on-month in April 2019.

“London prices fell 1.6% month-on-month in April, causing the annual rate of increase to moderate to 2.3% from 5.2% in March, which had been the strongest rise since November 2016.

Halifax and Nationwide both reported pick-up in house prices in July

Howard Archer continues: “Both Halifax and Nationwide have reported strengthening house prices in July. Halifax reported house prices rose 1.6% month-on-month in July, which was the first increase since February and the largest since December 2019. Prices had previously been flat month-on-month in June after dipping 0.2% in May, 0.6% in April and 0.3% in March.

“The annual rise in house prices rose to a six-month high of 3.8% in July, having fallen back to a seven-month low of 2.5% in June from 4.1% in January (the highest level since February 2018).

“Nationwide reported that house prices rose 1.7% month-on-month in July following declines of 1.6% month-on-month in June and 1.7% in May which had been the first monthly drops on their 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.”

Housing market activity has picked up since restrictions started to be eased, reinforced by the Stamp Duty break

Howard Archer continues: “The housing market was 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. The easing of restrictions for the Welsh, Northern Irish and Scottish (at end of month) housing markets occurred during June.

“There was an immediate pick-up in housing market activity following the easing of restrictions, which was then reinforced by the Chancellor’s raising of the Stamp Duty threshold to £500,000 from mid-July until 31 March 2021.

“The Bank of England reported that mortgage approvals for house purchases for house purchases rose to 40,010 in June after falling to a record low of 9,273 in May from 15,856 in April, 56,340 in March and a more than 6-year high of 73,660 in February. Even so, while an improvement on May, June’s level of 40,010 was still down 39.4% year-on-year and the third lowest level of mortgage approvals for house purchases since January 2009.

“Furthermore, Rightmove reported that a record number of home sales were agreed between mid-July and early-August.

“The monthly RICS residential monthly survey for July observed that “the ongoing recovery in sales market activity gained further momentum over the month. Anecdotal evidence suggests the Stamp Duty holiday, introduced from the 8th July, is playing a significant role in lifting demand. That said, despite the recent pick-up, respondents are circumspect on the prospect of this impetus being maintained once wider government support measures are phased out across the economy later in the year.” The survey reported significant rises in July in buyer enquiries, agreed sales and new instructions to sell.”

Outlook for the UK housing market

Howard Archer adds: “Housing market activity may see a further 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.

“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 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 as the furlough scheme draws to a close in October. This will not only adversely affect the fundamentals for house buyers, but also likely 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 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.

“Consequently, the EY ITEM Club suspects that house prices could be around 3% lower than now around the turn of the year.

“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% during 2021. Even so, the EY ITEM Club expects house price gains to be no more than 2-3% in 2021.”