Press release

16 Sep 2020 London, GB

Land Registry/ONS reports UK house prices rose 2.7% month-on-month and 3.4% year-on-year in June – EY ITEM Club comments

The Land Registry/ONS reported that house prices increased 2.7% month-on-month in June, lifting the year-on-year increase to 3.4%; this is the largest annual increase since March 2018.

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  • The Land Registry/ONS reported that house prices increased 2.7% month-on-month in June, lifting the year-on-year increase to 3.4%; this is the largest annual increase since March 2018
  • Prices in London climbed 3.6% month-on-month and 4.2% year-on-year
  • These figures back up more recent data from the Nationwide and Halifax which showed a marked firming of house prices in July and August – the Land Registry/ONS stats only cover house prices up to June
  • House prices have strengthened in August as housing market activity has been buoyed by the easing of restrictions that started in mid-May and 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 and house prices. However, the EY ITEM Club suspects the current 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 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 significant rise in unemployment. There is also likely to be a fading of pent-up demand
  • 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 5% lower than now by mid-2021
  • The EY ITEM Club expects housing market activity to gradually improve in 2021, allowing prices to stabilise and then start to firm as the labour market comes off 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:

“The Land Registry and ONS have relatively recently resumed publishing house price data having suspended the series due to the lack of housing market activity between March and May. The releases currently only cover house prices up to June. The latest statistics are further strong – if dated – data on the housing market.

“The data showed the year-on-year increase in house prices rose to 3.4% in June (the largest increase since March 2018) after falling back to 1.1% in May from 1.2% in April and the previous peak of 2.9% in March. It had earlier strengthened to March’s high from 0.6% in August 2019, which had been the lowest rate since October 2012.

“House prices increased an unadjusted 2.7% month-on-month in June. This followed a flat performance in May and a fall of 0.9% in April. Prices had risen 0.4% month-on-month in June 2019.

“London prices rose 3.6% month-on-month in June; the annual rate of increase rose to 4.2% in June from 2.1% in May and 1.2% in April. June’s annual increase essentially matched March’s level of 4.3%, which had been the strongest rise since December 2016.

“It needs to be noted that 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.

“It also should be noted that the Land Registry/ONS measure of house prices is currently prone to substantial revisions. For example, it had previously been reported that house prices in May rose 0.3% month-on-month and 2.9% year-on-year whereas they are now reported as flat month-on-month and up 1.1% year-on-year.”

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 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. There is also likely to be a fading of the pent-up demand effect on activity. Consequently, the EY ITEM Club predicts that house prices could come under downward pressure late on in 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.

“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 comes off its lows 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.”

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

Howard Archer continues: “Both Halifax and Nationwide have reported strengthening house prices in July and August. Halifax reported house prices rose 1.6% month-on-month in August after a similarly robust gain of 1.7% in July, which had been the first increase since February. The annual rise in house prices rose to a 5.2% in August – the highest since late-2016 – from 3.8% in July and a seven-month low of 2.5% in June.

“Nationwide 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 increased to 3.7% in August from 1.5% in July, thereby 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 adds: “Housing market activity in the UK has picked up since the easing of the lockdown restrictions that had held back the housing sector started in mid-May in England and then progressed across the UK. 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 coming from its re-opening 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 accelerated markedly for a second month running in July to be at a 5-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 collapsed 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.

“The monthly RICS residential monthly 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.”