Press release

30 Dec 2020 London, GB

Nationwide Reports House Prices Rose 0.8% month-on-month in December; Year-on-Year Increase Up to six year high of 7.3%

Nationwide Reports House Prices Rose 0.8% month-on-month in December; Year-on-Year Increase Up to six year high of 7.3%

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  • The Nationwide reported house prices rose by a robust 0.8% month-on-month in December; this was exactly in line with the increases of 0.8-0.9% seen over the previous three months. The year-on-year gain in house prices climbed to 7.3% in December, the highest since November 2014 from 6.5% in November
  • Remarkably, house prices were 7.3% higher at the end of 2020 than they were at the end of 2019 despite the significant impact COVID-19 had on the economy
  • House prices have strengthened markedly as housing market activity has been buoyed by the release of pent-up demand following the easing of restrictions from mid-May, people re-assessing their housing needs and preferences requirements following the first lockdown and the Chancellor raising the Stamp Duty threshold in England and Northern Ireland to £500,000 from mid-July through to 31 March 2021. Latest data from the Bank of England show mortgage approvals for house purchases were at a 13-year high in October
  • The EY ITEM Club suspects the recent robustness of housing market activity and strength of prices will prove unsustainable sooner rather than later. We expect the housing market to come under increasing pressure through much of 2021, although 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 the March Budget
  • The housing market is likely to come under mounting near-term pressure as the economy is hampered by major restrictions in most areas while there may well still be a significant rise in unemployment despite the furlough scheme being extended until April. The effect of pent-up demand on housing market activity is also likely to fade
  • The EY ITEM Club suspects that house prices could decrease by around 5% by the end of 2021
  • The EY ITEM Club expects housing market activity to gradually improve late on in 2021 allowing prices to stabilize as the UK’s economy establishes a sustained 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 and for some time thereafter

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

“The Nationwide reported house prices rose by a robust 0.8% month-on-month in December; this was exactly  in line with the gains seen in November (0.9%) October (0.8%) and September (0.9%). There had been particularly strong gains of 2.0% in August (the strongest month-on-month rise since February 2004) and 1.7% month-on-month in July.

“The year-on-year change in house prices climbed to 7.3% in December – the highest since November 2014 - from 6.5% in November, 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. 

“The solid underlying rise in house prices was evident in the three-month/three-month house prices still being as high as 3.0% in December, although this was down from 3.7% in November (the strongest three-month/three-month gain since October 2009).

Housing market activity has retained the buoyancy evident since restrictions were eased from May

Howard Archer says: “The strength in house prices has occurred amid a strong rebound in housing market activity after it had ground to a halt in April and May.

“Housing market activity in the UK picked up from May onwards after the initial lockdown restrictions, 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 Chancellor’s raising of the Stamp Duty threshold in England and Northern Ireland to £500,000 from mid-July until 31 March 2021.

“Additionally, the Nationwide has 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 polarization 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 months.”” 

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. We expect the housing market to come under increasing pressure through much of 2021, although 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 the March Budget.

“The EY ITEM Club believes that the housing market is likely to come under mounting near-term pressure as the economy is hampered by restrictions while there may well still be a significant rise in unemployment despite the furlough scheme being extended until April. Meanwhile, earnings growth looks likely to be limited. 

“The effect of pent-up demand on housing market activity is likely to fade, while pandemic-related restrictions may also have some dampening impact on housing market activity as well as consumer confidence.

“Consequently, the EY ITEM Club suspects that house prices could decrease by around 5% by the end of 2021.

“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 vaccine could also provide support to confidence, the economy and housing market activity.    

“The EY ITEM Club expects housing market activity to gradually improve late on in 2021 allowing prices to stabilize as the UK’s economy establishes a sustained 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 and for some time thereafter.”