Press release

18 Nov 2020 London, GB

Land Registry/ONS reports UK house prices rose 1.7% month-on-month and 4.7% year-on-year in September – EY ITEM Club comments

The Land Registry reported that house prices rose 1.7% month-on-month in September, pushing the annual increase to a 35-month high of 4.7%.

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  • The Land Registry reported that house prices rose 1.7% month-on-month in September, pushing the annual increase to a 35-month high of 4.7%.
  • Prices in London climbed 0.8% month-on-month; the annual rate of increase was stable at 4.1% (the highest since April 2017).
  • House prices have strengthened as market activity has maintained the buoyancy evident since pent-up demand was released by the easing of restrictions from mid-May. 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 recent robust 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 at the end of 2020 and during the early months of 2021. The slowdown in the month-on-month increase in October reported by the Halifax hinted that house prices rises may be starting to slow. Rightmove has also reported asking prices dipped 0.5% month-on-month in November.
  • Near-term pressure will also come from rising COVID-19 cases and lockdown restrictions, while there may well still be a significant rise in unemployment despite the furlough scheme being extended until March. There is also likely to be a fading of the pent-up demand effect.  
  • The EY ITEM Club expects some temporary support for the housing market 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 stabilize 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:

“The Land Registry/ONS reported the year-on-year increase in house prices rose to 4.7% in September – the largest increase since October 2017. This is up from 3.0% in August and 1.8% in July. It has picked up from a low of 0.6% in April.

“House prices rose an unadjusted 1.7% month-on-month in September. This followed month-on-month increases of 1.5% in August and 0.6% in July. Prices had risen 0.1% month-on-month in September 2019.

“London prices rose 0.8% month-on-month in September. The annual rate of increase was stable at 4.1% in September (the highest since April 2017) having risen to this level in August from 1.3% in July and 0.6% in April. 

“It needs to be borne in mind 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 6 to 8 weeks to reach completion.”

Latest Halifax and Rightmove data hint that house prices could be starting to come off the boil

Howard Archer observes: “Halifax recently reported house prices rose a much reduced 0.3% month-on-month in October, hinting that the 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. Nevertheless, the annual rise in house prices rose 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.

“Meanwhile, Nationwide reported that house prices rose 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.

“Additionally, Rightmove reported that asking prices for houses dipped 0.5% month-on-month in November after an increase of 1.1% in October.”

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 picked up from May onwards as after lockdown restrictions were eased. There was an immediate pick-up in housing market activity as pent-up activity was released.

“This lift 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."

“The Bank of England reported that mortgage approvals for house purchases accelerated 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.

“The monthly RICS residential monthly survey for September observed that its findings “continue to point to a strong upturn in activity across the market, as indicators on enquiries, agreed sales and new listings all remain strongly positive.””

Outlook for the UK housing market

Howard Archer adds: “The EY ITEM Club suspects 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 the Halifax and November’s dip in asking prices reported by Rightmove hint that prices at least may be starting to come off the boil.

“The EY ITEM Club suspects that house prices could be around 5% lower than now by mid-2021. The housing market is likely to come under mounting near-term pressure amid rising COVID-19 cases and lockdown restrictions, while there is likely to be a significant rise in unemployment even though the furlough scheme has been extended until March. Meanwhile, earnings have been limited and are likely to remain so.

“There is also likely to be a fading of the pent-up demand effect on housing market activity, while pandemic-related restrictions may also have some dampening impact on housing market activity as well as consumer confidence. Indeed, consumer confidence declined appreciably in October, which may increase the caution of many people in making major spending decisions.

“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.”