Press release

7 Sep 2020 London, GB

Halifax reports UK house prices rose 1.6% month-on-month in August with annual increase up to 5.2% – EY ITEM Club comments

The recent firming in the UK housing market continued as Halifax reported house prices rose 1.6% month-on-month in August. The annual rate of increase rose to 5.2% in August (the highest since late-2016).

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  • The recent firming in the UK housing market continued as Halifax reported house prices rose 1.6% month-on-month in August. This followed a similarly robust gain of 1.7% in July. The annual rate of increase rose to 5.2% in August (the highest since late-2016) from 3.8% in July and a 7-month low of 2.5% in June
  • House prices were lifted substantially in August as housing market activity continued to be buoyed by the easing of restrictions that started in mid-May which released pent-up demand. This trend has been reinforced by the Chancellor raising the Stamp Duty threshold to £500,000 from mid-July through to 31 March 2021
  • It is possible that the immediate future could see further pick-ups in housing market activity, leading to ongoing support for house prices
  • However, the EY ITEM Club suspects the current gains in the housing market will prove unsustainable sooner rather than later due to challenging fundamentals for consumers
  • Despite the current robust firming in activity and prices, the EY ITEM Club suspects that the housing market will come under increasing pressure over the final months of 2020 and start of 2021 when there is likely to be a significant rise in unemployment. There is also likely to be a fading of the pent-up demand effect
  • The EY ITEM Club expects the housing market to remain under pressure over the early months of 2021, although some temporary support in Q1 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 by early-2021
  • The EY ITEM Club does expect housing market activity to gradually improve from early-2021 as the labour market stabilises then starts to modestly improve and the UK’s economic recovery continues. 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 over 2021 to be no more than 2-3%

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

“There was more evidence of a recent firming in the UK housing market as Halifax reported house prices rose 1.6% month-on-month in August. This followed a similarly strong increase of 1.7% in July. 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 increased to 5.2% in August – the highest since late-2016 – from 3.8% in July and a seven-month low of 2.5% in June. It had fallen to June’s low from a previous peak of 4.1% in January (the highest level since February 2018).

“House prices were up 1.3% in the three months to August compared to the three months to May, after falls of 0.2% in the three months to July and 0.9% in the three months to June.

“Nationwide had earlier reported that house prices rose 2.0% month-on-month in August, which was the strongest monthly gain since February 2004 and followed a similarly robust increase of 1.8% month-on-month in July. In contrast, there had been appreciable month-on-month declines of 1.6% in both June and May. The year-on-year change in house prices jumped to 3.7% in August from 1.5% in July, matching April’s strongest annual increase since February 2017; house prices had previously dipped 0.1% year-on-year in June which had been the first annual decline in house prices since December 2012.”

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

Howard Archer continues: “Housing market activity in the UK has progressively picked up since the easing of the lockdown restrictions that had held back the housing sector. There was an immediate pick-up in housing market activity following the easing of restrictions as pent-up activity was released.

“The lift to housing market activity, caused by its re-opening, has since been then reinforced by the Chancellor’s raising of the Stamp Duty threshold to £500,000 from mid-July until 31 March 2021.

“Nationwide also observed that ‘behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown. [Nationwide] research, conducted in May, indicated that around 15% of people surveyed were considering moving as a result of lockdown’.

“The Bank of England reported that mortgage approvals for house purchases accelerated markedly for a second month running in July to be at a five-month high of 66,281. This was up from 39,9902 in June and a record low of just 9,285 in May. Mortgage approvals for house purchases had previously fallen to May’s record low from 15,867 in April, 56,289 in March and a more than six-year high of 73,681 in February.

Outlook for the UK housing market

Howard Archer adds: “Housing market activity may well 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 further 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 current marked pick-up in activity and firming of prices will prove unsustainable before long, with the upside for the housing market being limited by 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 significant 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. There is also likely to be a fading of the pent-up demand effect on activity. 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 by early-2021.

“The EY ITEM Club does expect housing market activity to gradually improve from early-2021 as the labour market stabilises then starts to modestly improve and the UK’s economic recovery continues. 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 over 2021 to be no more than 2-3%.”