Press release

7 Dec 2020 London, GB

Halifax reports UK house prices remain firm with annual increase the highest since mid-2016 – EY ITEM Club comments

Halifax reported house prices rose a robust 1.2% month-on-month in November, indicating that prices remain firm

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Related topics COVID-19 Growth
  • Halifax reported house prices rose a robust 1.2% month-on-month in November, indicating that prices remain firm. The year-on-year gain in house prices rose to 7.6% in November (the highest since June 2016).
  • House prices have strengthened as housing market activity has been buoyed by the release of pent-up demand following the easing of restrictions from mid-May. People seem to be re-assessing their housing needs following the first lockdown and the Stamp Duty threshold increase.
  • The EY ITEM Club suspects the recent robust housing market activity and strengthening of prices will prove unsustainable sooner rather than later due to challenging fundamentals for consumers – although in the immediate future, activity may still benefit from people looking to move in time to complete before the Stamp Duty threshold increase ends.
  • The housing market is likely to come under mounting, near-term pressure as the economy is affected by continuing COVID-19 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 pent-up demand.  
  • The EY ITEM Club expects the housing market to be under pressure through H1 2021, although some temporary support early on 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 chance the increase could be extended. An early widespread roll-out of a COVID-19 vaccine could also provide support to confidence, the economy and housing market activity.  
  • The EY ITEM Club suspects that house prices could decline 5% over the first half of 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 economy establishes a firmer footing 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 robust 1.2% month-on-month in November, indicating that house prices remain firm after a much reduced increase of 0.3% in October. This followed gains of 1.5-1.7% during July-September, and had hinted that prices could be starting to come off the boil.

“The year-on-year gain in house prices rose to 7.6% in November (the highest since June 2016) from 7.5% in October, 7.3% in September, 5.2% in August and a seven-month low of 2.5% in June.

“The three-month/three-month gain in house prices edged back to 3.8% in November from 4.0% in October. 

“Nationwide reported last week that house prices rose a still-solid 0.9% month-on-month in November, a similar level to the gains seen in both October (0.8%) and September (0.9%). The year-on-year change in house prices climbed to 6.5% in November – the highest since January 2015 – from 5.8% in October, 5.0% in September, 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.”

Housing market activity has retained its buoyancy

Howard Archer continues: “The strength in house prices has occurred amid a strong rebound in housing market activity after the lows seen in April and May. Housing market activity in the UK picked up from May onwards after the 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.

“Additionally, Nationwide recently observed that: “behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown.” In particular, it appears that an increasing number of people want a garden and also space to work at home. This is leading to some polarisation in demand for residential properties.

“Latest data from the Bank of England show that mortgage approvals for house purchases accelerated for a fifth month running in October to 97,532, the most since August 2007. This was up from 92,091 in September, 85,704 in August, 67,433 in July, 40,357 in June and a record low of 9,355 in May.

“In addition, the RICS residential monthly survey for October observed that buyer enquiries, transaction volumes and new instructions to sell were all at elevated levels, albeit a little down on September. However, the survey showed concerns persist over longer-term outlook.”

Outlook for the UK housing market 

Howard Archer adds: “The EY ITEM Club suspects elevated housing market activity and robust prices will prove unsustainable sooner rather than later – although, in the immediate future, activity may still benefit from people looking to make a move in time to complete before the Stamp Duty threshold increase ends.

“The EY ITEM Club suspects that house prices could decline around 5% over the first half of 2021. The housing market is likely to come under mounting near-term pressure amid COVID-19 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 the housing market and consumer confidence. Indeed, consumer confidence declined further in November to be at a six-month low, 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. An early widespread rolling out of a COVID-19 vaccine could also provide support to confidence, the economy and housing market activity.    

“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 economy establishes a firmer footing and the labour market comes off its lows. Very low borrowing costs should also help with the Bank of England highly unlikely to lift interest rates from 0.10% during 2021.”