Press release

6 Nov 2020 London, GB

Halifax reports slower UK house price growth in October but annual increase up to four-year high – EY ITEM Club comments

Halifax reported house prices rose a much reduced 0.3% month-on-month in October, which followed robust monthly gains of 1.5-1.7% during July-September.

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  • Halifax reported house prices rose a much reduced 0.3% month-on-month in October, which followed robust monthly gains of 1.5-1.7% during July-September. The annual rate of increase rose to 7.5% in October (the highest since June 2016) from 7.3% in September, 5.2% in August and a 7-month low of 2.5% in June
  • The EY ITEM Club says that October’s slowdown hints that prices may be starting to come off the boil
  • House prices have strengthened as housing market activity has maintained the buoyancy evident since the easing of restrictions from mid-May, following the release of pent-up demand. This has been reinforced by the raising of the Stamp Duty threshold to £500,000 from mid-July through to 31 March 2021
  • 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. The EY ITEM Club suspects that the housing market will come under increasing pressure over the last months of 2020 and early months of 2021
  • Near-term pressure is likely to come from the economic impact of rising COVID-19 cases and added lockdown restrictions, while there may well still be a significant rise in unemployment despite the furlough scheme being extended. There is also likely to be a fading of the pent-up demand effect on housing market activity
  • The housing market may receive some temporary support 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 the UK’s economic recovery regains momentum and the labour market comes off its lows. Very low borrowing costs should also help, 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:

“Halifax reported house prices rose a much-reduced 0.3% month-on-month in October, hinting that the recent robust monthly gains in house prices could be coming to an end. Prices had previously risen 1.5% month-on-month in September after gains of 1.7% in both August and July. Prices had earlier been flat month-on-month in June after dipping 0.2% in May, 0.6% in April and 0.3% in March.

“Nevertheless, the annual rise in house prices increased to 7.5% in October – the highest since June 2016 – from 7.3% in September, 5.2% in August, 3.8% in July and a seven-month low of 2.5% in June. It had reached June’s low from a previous peak of 4.1% in January (the highest level since February 2018).

“House prices were still up a robust 4.0% in the three months to October compared to the three months to July.

“Nationwide had earlier reported that house prices increased 0.8% month-on-month in October after gains of 0.9% in September and 2.0% in August. The year-on-year change in house prices climbed to 5.8% in October (the highest since January 2015) from 5.0% in September, 3.7% in August and 1.5% in July.”

Housing market activity has picked up since restrictions were eased from May, reinforced by the Stamp Duty break

Howard Archer observes: “Housing market activity in the UK progressively picked up after the easing of the lockdown restrictions started in mid-May in England and then progressed across the UK. There was an immediate pick-up in housing market activity as pent-up activity was released.

“The lift to housing market activity coming from its re-opening was then reinforced by the raising of the Stamp Duty threshold to £500,000 from mid-July until 31 March 2021.

“Last week, the Bank of England reported that mortgage approvals for house purchases accelerated markedly for a fourth month running in September to be at a 13-year high of 91.454. This was up from 85,530 in August and a record low of just 9,338 in May.”

Outlook for the UK housing market

Howard Archer adds: “The EY ITEM Club suspects the current robust housing market activity and firming of prices will prove unsustainable sooner rather than later. October’s slowdown in the month-on-month increase reported by Halifax hints that prices may be starting to come off the boil.

“Consequently, the EY ITEM Club suspects that house prices could be around 5% lower than now by mid-2021.

“The EY ITEM Club suspects that the housing market is likely to come under mounting near-term pressure as the economy is increasingly affected by rising COVID-19 cases and added lockdown restrictions, while there is still likely to be a significant rise in unemployment even though the furlough scheme has been extended. Many businesses, especially in the hospitality sector, are already finding life difficult. Meanwhile, earnings have been limited and are likely to remain so, and there is also likely to be a fading of the pent-up demand effect on housing market activity.

“Renewed COVID-related restrictions may also have some dampening impact on housing market activity as well as consumer confidence. Indeed, consumer confidence declined in October, which may increase caution for people making major spending decisions such as buying or moving house.

“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 UK’s economic recovery regains momentum and the labour market comes off its lows. Very low borrowing costs should also help with the Bank of England unlikely to lift interest rates from 0.10% during 2021.”