Press release

7 Aug 2020 London, GB

Halifax reports UK house prices rose 1.6% month-on-month in July with annual increase up to 3.8% – EY ITEM Club comments

Halifax reported house prices rose 1.6% month-on-month in July, which was the first increase since February and the largest rise since December 2019. The annual rate of increase rose to a six-month high of 3.8% in July from a 7-month low of 2.5% in June.

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  • July’s rebound in house prices echoed a similar performance on the Nationwide measure; this showed prices rising 1.7% month-on-month in July (although prices were up a lesser 1.5% year-on-year)
  • House prices appear to have been lifted in July by the easing of lockdown restrictions in England from mid-May, and in Wales, Northern Ireland and Scotland (at end of month) in June. Housing market activity had come to a near standstill from late-March, following the introduction of COVID-19 lockdown restrictions
  • Latest 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 may well see a pick-up in activity 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 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 marked rise in unemployment
  • There could be some temporary support in the first quarter of 2021 with 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. Housing market activity should gradually improve as 2021 progresses and the UK’s economic recovery gains traction. 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, expect house price gains to be no more than 2-3% in 2021

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

“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).

“House prices were down 0.2% in the three months to July compared to the three months to March, after a drop of 0.9% in the three months to June.

“Nationwide had earlier 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. 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.”

Housing market activity has picked up after coming to a standstill from late-March to mid-May due to Coronavirus restrictions

Howard Archer continues: “The housing market was essentially brought to a standstill from late-March through to mid-May by the lockdown. There does appear to have been an immediate pick-up in housing market activity following the easing of restrictions.

“The Bank of England reported that mortgage approvals for house purchases for house purchases rose markedly to 40,010 in June after falling to a record low of just 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 a sharp 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.

“Survey and anecdotal evidence for July has shown improvement in housing market activity.

“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.””

Stamp Duty Threshold increase likely to offer limited near-term support

Howard Archer adds: “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 suggested that there has been an initial beneficial impact from the Stamp Duty move. 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 8 July.”

Outlook for 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 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 as the furlough scheme draws to an end in October, 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 house prices could come under downward pressure in late 2020.

“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.

“As a result, the EY ITEM Club suspects that house prices could well 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, expect house price gains to be no more than 2-3% in 2021.”