Press release

8 Jan 2021 London, GB

Halifax reports UK house prices rose only 0.2% month-on-month in December with annual increase up to 6.0% – EY ITEM Club comments

Perhaps an early sign that recent buoyant house prices may just be starting to come off the boil.

Press contact
Annabel Banks

Manager, Media Relations, Ernst & Young LLP

A highly experienced communications professional with cross-sector experience in media relations having worked with global brands spanning elite professional services firms to digital start-ups.

Related topics Growth COVID-19
  • Perhaps an early sign that recent buoyant house prices may just be starting to come off the boil
  • Halifax reported house prices rose a much-reduced 0.2% month-on-month in December. While this was the sixth successive monthly increase, it was the smallest since prices started rising in July and down from a gain of 1.0% in November. The year-on-year gain in house prices moderated to a four-month low of 6.0% in December from 7.6% in November (the highest since June 2016)
  • House prices were 6.0% higher at the end of 2020 than they were at the end of 2019, which is remarkable given the effects on the economy of COVID-19
  • Signs that house price increases could be seeing an underlying slowdown were suggested by the three-month/three-month rise in house prices moderating to 2.6% in December from 3.8% in November and 4.0% in October
  • House prices strengthened in 2020 as market activity was buoyed by the release of pent-up demand following the easing of restrictions from mid-May, people re-assessing their housing requirements following the first lockdown and the Stamp Duty threshold rising to £500,000 from mid-July through to 31 March 2021
  • However, the EY ITEM Club suspects the current robustness of housing market activity and the strength of prices will prove unsustainable sooner rather than later – although it may well hold up in the first quarter from buyers looking to take final advantage of the Stamp Duty threshold increase before it ends. There is always the possibility that the Chancellor could extend the increase in the March Budget
  • The housing market is likely to come under mounting pressure in the near term as the economy continues to be affected by COVID-19 restrictions. In addition, there may 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 stabilise as the UK’s economy establishes a sustained firmer footing and the labour market comes off its lows, supported by the roll-out of the COVID-19 vaccines. 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: 

“Halifax reported house prices rose a much-reduced 0.2% month-on-month in December. This was a sixth successive monthly increase but the smallest since prices started rising in July and down from an increase of 1.0% in November. House prices had previously risen 0.3% in October following gains of 1.5-1.7% during July-September.

“The year-on-year gain in house prices moderated to a four-month low of 6.0% in December after rising 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 moderated to 2.6% in December (the lowest since August) from 3.8% in November and 4.0% in October.

“While Halifax data hint that recently buoyant house prices may be starting to come off the boil, it can only be a tentative suspicion. Nationwide recently reported house prices rose a still-robust 0.8% month-on-month in December, which was a fourth successive month of 0.8-0.9% monthly increases. The year-on-year change in Nationwide’s house price index climbed to 7.3% in December – the highest since November 2014 – from 6.5% in November, and 5.8% in October.”

Housing market activity has retained its buoyancy

Howard Archer continues: “The considerable 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 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 the Stamp Duty threshold to £500,000 from mid-July until 31 March 2021.

“Additionally, Nationwide has 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 sixth month running in November to 104,969 – the highest since August 2007. This was up from 98,338 in October, 92,594 in September, 86,174 in August and a record low of 9,348 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 – although, in the immediate future, activity may still benefit from buyers keen to take advantage of the Stamp Duty threshold increase before it ends. There is always the possibility that the Chancellor could extend the threshold increase 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 continues to be affected by restrictions in most areas, 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.

“There is also likely to be a fading of the pent-up demand effect on housing market activity. Consequently, the EY ITEM Club suspects that house prices could be around 5% lower than now by the end of 2021.

“The EY ITEM Club expects housing market activity to gradually improve late on in 2021 allowing prices to stabilise as the UK’s economy establishes a sustained firmer footing and the labour market comes off its lows, supported by the rolling out of the COVID-19 vaccines. 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.”