Press release

16 Dec 2020 London, GB

Land Registry/ONS reports UK house prices rose to a year-on-year four-year high in October – EY ITEM Club comments

The Land Registry/ONS reported that house prices rose 0.7% month-on-month in October, causing the annual increase to rise to a four-year high of 5.4%, up from 4.3% in September.

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  • The Land Registry/ONS reported that house prices rose 0.7% month-on-month in October, causing the annual increase to rise to a four-year high of 5.4%, up from 4.3% in September.
  • In contrast, prices in London dipped 1.2% month-on-month in October. The annual rate of increase moderated to 3.9%.
  • House prices have strengthened as 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 continued restrictions on activity, 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 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 – 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.  
  • The EY ITEM Club suspects that house prices could fall back 5% over the first half of 2021 before activity gradually improves over the second half of 2021. This will allow 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.
  • In a ‘no deal’ Brexit scenario, the EY ITEM Club expects there would be a significant negative impact on housing market activity and downward pressure on house prices in 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 5.4% in October – the largest increase since October 2016. This is up from 4.3% in September, 2.9% in August and 2.1% in July. It has picked up from a low of 0.6% in April.

“House prices rose an unadjusted 0.7% month-on-month in October. This followed month-on-month increases of 1.7% in September and 1.5% in August. Prices had dipped 0.3% month-on-month in October 2019.

“In contrast to the overall rise in UK house prices, London prices fell back 1.2% month-on-month in October. The annual rate of increase moderated to 3.9%. 

“It needs to be borne in mind that the Land Registry/ONS measure of house price inflation is based on completed housing transactions, and the ONS has observed that typically, a house purchase can take six to eight weeks to reach completion.”  

Latest Halifax and Nationwide data point to still firm house prices in November

Howard Archer says: “Latest data from both Halifax and Nationwide show that house prices remained robust in November. Halifax reported a 1.2% month-on-month rise, which lifted the year-on-year increase to 7.6% in November (the highest since June 2016) from 7.5% in October. Meanwhile, Nationwide reported that house prices were up 0.9% in November. The year-on-year increase climbed to 6.5% (the highest since January 2015) from 5.8% in October.”

Housing market activity has retained its buoyancy

Howard Archer continues: “The marked strengthening 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 initial lockdown restrictions that were imposed on 23 March 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 raising of the Stamp Duty threshold to £500,000 from mid-July until 31 March 2021.

“Additionally, as a result of life in lockdown, people are reassessing their housing needs. 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 November observed that its results “remain consistent with a solid trend in sales activity across the market, even if the sharp growth in buyer demand reported over recent months appears to losing a bit of steam”. The survey also observed that “near-term expectations for both prices and transactions point to a more moderate picture emerging over the coming month.””

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 fall back around 5% over the first half of 2021. The housing market is likely to come under mounting near-term pressure amid restrictions on activity, 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 pent-up demand 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.

“Should there ultimately be a no deal Brexit, the EY ITEM Club expects there would be a significant negative impact on housing market activity and downward pressure on house prices in 2021.”