Press release

30 Sep 2020 London, GB

Nationwide reports house prices strengthened further in September – EY ITEM Club comments

Nationwide reported house prices rose 0.9% month-on-month in September, which was a third successive appreciable monthly gain; this lifted the year-on-year increase to a five-year high of 5.0%

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Related topics Growth COVID-19
  • Nationwide reported house prices rose 0.9% month-on-month in September, which was a third successive appreciable monthly gain; this lifted the year-on-year increase to a five-year high of 5.0%
  • Housing market maintained the buoyancy evident since mid-May, when the easing of COVID-19 restrictions released pent-up demand. This buoyancy has been reinforced by the Chancellor raising the Stamp Duty threshold to £500,000 from mid-July through to 31 March 2021. It was also highlighted by the Bank of England reporting yesterday that mortgage approvals for house purchases rose to a near 13-year high of 84,715 in August
  • However, the EY ITEM Club suspects the current gains in the housing market will become unsustainable sooner rather than later due to challenging fundamentals for consumers
  • The EY ITEM Club believes 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. Some temporary support may come in Q1 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 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 unemployment falls and the UK’s economic recovery continues. Very low borrowing costs should also help – the EY ITEM Club does not expect the Bank of England to lift interest rates from 0.10% during 2021

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

“Nationwide reported house prices rose for a third month running in September as they increased by 0.9% month-on-month; this followed monthly gains of 2.0% in August (the strongest month-on-month rise since February 2004) and a similarly robust increase of 1.7% month-on-month in July. In contrast, there had been appreciable month-on-month declines of 1.6% in both June and May, which were the first monthly decreases on Nationwide measure since last September and the largest declines since February 2009.

“The year-on-year change in house prices rose to 5.0% in September, the highest since September 2016; this was up from 3.7% in August, 1.5% in July and a dip of 0.1% year-on-year in June, which had been the first annual decline in house prices since December 2012.

“House prices rose 1.7% quarter-on-quarter in the third quarter, after essentially being flat over the second quarter.”

Housing market activity picked up since restrictions were 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 started in mid-May. These restrictions had held back the housing sector before that. 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.

“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, the Nationwide’s report said: ““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.””

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 in the short term, with the upside for the housing market being limited by challenging fundamentals for consumers. The EY ITEM Club suspects that house prices could be around 5% lower than now by mid-2021.

“Many people have already lost their jobs, despite the supportive Government measures, while others are concerned about possible redundancy once the furlough scheme ends. Separately, 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 degree of 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 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.

“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.

“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 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.”