- Recent robust news about the UK housing market continues as Halifax reported house prices rose 1.6% month-on-month in September, which followed similar gains in August (1.6%) and July (1.7%). The annual rate of increase rose to 7.3% in September (the highest since June 2016) from 5.2% in August, 3.8% in July and a seven-month low of 2.5% in June
- House prices strengthened in September as housing market activity maintained the buoyancy evident since mid-May when the easing of restrictions released pent-up demand. This pick-up has been reinforced by the Chancellor raising the Stamp Duty threshold to £500,000 from mid-July to 31 March 2021
- However, the EY ITEM Club suspects the current gains in the housing market are likely to be unsustainable due to challenging fundamentals for consumers
- The EY ITEM Club suspects that the housing market will come under increasing pressure over late-2020 and the early months of 2021 when there is likely to be a significant rise in unemployment and waning pent-up demand. Some temporary support in Q1 2021 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
- The EY ITEM Club suspects that house prices could be around 5% lower than now by mid-2021
- The EY ITEM Club expects housing market activity to gradually improve over the second half of 2021 allowing prices to stabilise and then start to firm as the labour market improves from its lows and the UK’s economic recovery continues. Very low borrowing costs should also help matters with the Bank of England unlikely to lift interest rates from 0.10% during 2021
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“There is more evidence of a currently robust UK housing market with Halifax reporting house prices rose 1.6% month-on-month in September. This matched the strong month-on-month gains of 1.6% in August and 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 7.3% in September – the highest since June 2016 – from 5.2% in August, 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 rose 3.3% quarter-on-quarter in the third quarter, compared to a drop of 0.9% quarter-on-quarter in the second quarter.
“Nationwide had earlier reported that house prices rose 0.9% month-on-month in September after a gain of 2.0% in August. The year-on-year change in house prices climbed to a five-year high of 5.0% in September from 3.7% in August and 1.5% in July.”
Housing market activity has picked up markedly 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 – there was an immediate pick-up in housing market activity as pent-up activity was released. This was then reinforced by the Chancellor’s raising of the Stamp Duty threshold to £500,000 from mid-July until 31 March 2021.
“Nationwide observed that: “Behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown. Indeed, Nationwide reported that “Interestingly, around 10% of those surveyed in September said they were in the process of moving as a result of the pandemic, with a further 18% considering a move for the same reason. This pattern was evident across the country, especially in London. Of those moving or considering a move, around a third (35%) were looking to move to a different area, while nearly 30% were doing so to access a garden or outdoor space more easily.””
Howard Archer continues: “The Bank of England reported that mortgage approvals for house purchases accelerated for a third month running in August to be at a near 13-year high of 84,715. This was up from 66,288 in July and a record low of 9,285 in May.
“The monthly RICS residential survey for August observed that its findings “continue to portray strong momentum behind the sales market at present, even if the longer term view remains more cautious.” The survey reported strong rises in August in buyer enquiries, agreed sales and new instructions to sell.”
Outlook for the UK housing market
Howard Archer adds: “The EY ITEM Club suspects the current pick-up in activity and firming of prices will prove unsustainable before long due to challenging fundamentals for consumers.
“Many people have already lost their jobs, despite the supportive Government measures, while others will be concerned about redundancy 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 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 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 could also fuel caution on committing to buying a house. It’s also likely that pent-up demand will wane.
“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.
“Consequently, the EY ITEM Club suspects that house prices could be around 5% lower than now by mid-2021.
“The EY ITEM Club expects housing market activity to gradually improve over the second half of 2021, allowing prices to stabilise and then start to firm as the labour market improves from its lows and the UK’s economic recovery continues. Very low borrowing costs should also help matters with the Bank of England unlikely to lift interest rates from 0.10% during 2021.”