Press release

5 Mar 2021 London, GB

Halifax reports UK house prices edged down 0.1% month-on-month in February with annual increase at 6-month low of 5.2% – EY ITEM Club comments

Latest Halifax data further evidence that recent buoyant house prices are coming off the boil.

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  • Latest Halifax data further evidence that recent buoyant house prices are coming off the boil.
  • Halifax reported house prices fell 0.1% month-on-month (m/m) in February after dipping 0.4% m/m in January, which had been the first monthly fall in house prices on the Halifax measure since last May. The year-on-year (y/y) gain in house prices moderated to a six-month low of 5.2% in February, from 5.4% in January and 7.6% in November, the highest since June 2016.
  • Evidence of an underlying slowdown came from the three-month/three-month rise in house prices slowing to 0.5% in February (the weakest since last July) from 1.6% in January, 2.5% in December and 4.0% in October.
  • However, Nationwide reported a renewed firming of 0.7% m/m in house prices in February after a fall of 0.2% in January.
  • House prices have strengthened with housing market activity buoyed by the release of pent-up demand following the easing of restrictions from mid-May last year, people re-assessing their housing needs in the wake of lockdowns and the temporary raising of the Stamp Duty threshold.
  • The EY ITEM Club believes that the current strengthening of the housing market has been outsized relative to economic fundamentals and the strength of prices will prove unsustainable sooner rather than later – although activity and prices may get some near-term support from the Chancellor extending the Stamp Duty threshold increase. The mortgage guarantee scheme for people with low deposits may also provide some support.
  • The strengthening of the market has occurred despite the contraction in the UK economy over 2020 and rising unemployment. The economy looks headed for clear contraction in Q1 2021.
  • While the economy is expected to see decent recovery get underway from Q2, unemployment is likely to rise further despite the extension of the furlough scheme to the end of September. Additionally, pay growth is likely to be limited over the coming months. Meanwhile, the positive effect of pent-up demand on housing market activity is likely to fade.  
  • The EY ITEM Club now suspects that house prices could correct over H2 2021 and end up falling around 3% over the year.
  • The EY ITEM Club expects housing market activity to start gradually improving early on in 2022, allowing prices to stabilise 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.
  • Latest Halifax data further evidence that recent buoyant house prices are coming off the boil.
  • Halifax reported house prices fell 0.1% month-on-month (m/m) in February after dipping 0.4% m/m in January, which had been the first monthly fall in house prices on the Halifax measure since last May. The year-on-year (y/y) gain in house prices moderated to a six-month low of 5.2% in February, from 5.4% in January and 7.6% in November, the highest since June 2016.
  • Evidence of an underlying slowdown came from the three-month/three-month rise in house prices slowing to 0.5% in February (the weakest since last July) from 1.6% in January, 2.5% in December and 4.0% in October.
  • However, Nationwide reported a renewed firming of 0.7% m/m in house prices in February after a fall of 0.2% in January.
  • House prices have strengthened with housing market activity buoyed by the release of pent-up demand following the easing of restrictions from mid-May last year, people re-assessing their housing needs in the wake of lockdowns and the temporary raising of the Stamp Duty threshold.
  • The EY ITEM Club believes that the current strengthening of the housing market has been outsized relative to economic fundamentals and the strength of prices will prove unsustainable sooner rather than later – although activity and prices may get some near-term support from the Chancellor extending the Stamp Duty threshold increase. The mortgage guarantee scheme for people with low deposits may also provide some support.
  • The strengthening of the market has occurred despite the contraction in the UK economy over 2020 and rising unemployment. The economy looks headed for clear contraction in Q1 2021.
  • While the economy is expected to see decent recovery get underway from Q2, unemployment is likely to rise further despite the extension of the furlough scheme to the end of September. Additionally, pay growth is likely to be limited over the coming months. Meanwhile, the positive effect of pent-up demand on housing market activity is likely to fade.  
  • The EY ITEM Club now suspects that house prices could correct over H2 2021 and end up falling around 3% over the year.
  • The EY ITEM Club expects housing market activity to start gradually improving early on in 2022, allowing prices to stabilise 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: 

“Halifax reported house prices fell 0.1% month-on-month in February, marking a second successive fall. House prices had previously fallen 0.4% month-on-month in January, which had been the first monthly fall reported by the Halifax since last May and the largest since April. It followed a flat performance in December. Prior to this house prices had risen for five months running, including a gain of 1.0% in November.

“The year-on-year gain in house prices moderated to a six-month low of 5.2% in February from 5.4% in January, 6.0% in December and 7.6% in November – the highest since June 2016. The annual increase climbed to November's peak 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 slowed significantly to 0.5% in February – the lowest level since last July – from 1.6% in January, 2.5% in December, 3.8% in November and 4.0% in October. 

“Halifax’s data support the case for believing recently buoyant house prices are coming off the boil.

“However, Nationwide reported house prices rebounded 0.7% month-on-month in February after dipping 0.2% month-on-month in January, which had been the first monthly drop on that measure since last June and followed four successive 0.8-0.9% monthly increases through to December. The year-on-year change in house prices rose back up to 6.9% in February after moderating to 6.4% in January from 7.3% in December, which had been the highest level since November 2014. Nevertheless, the three-month/three-month growth rate in house prices did moderate to 1.9% in February, which was the lowest since last September and down from 2.3% in January, 3.0% in December and a peak of 3.7% in November.”

Housing market activity has been buoyant but it could be starting to slow

Howard Archer continues: “The marked strength in house prices has occurred amid a considerable pick-up in housing market activity after the lows seen in April and May 2020. Housing market activity in the UK increased from May onwards after the initial lockdown restrictions that were introduced 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 from £125,000 to £500,000 from mid-July until 31 March 2021.

“Additionally, Nationwide has observed that behavioural shifts may also be pushing up activity, with people reassessing their housing needs as a result of lockdown. It appears that an increasing number of people want a garden and 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 eased back to a still highly elevated 98,994 in January from 102,809 in December and 105,009 in November, which had been the highest since August 2007. Mortgage approvals for house purchases had previously risen for six successive months through to November’s more than 13-year high from a record low of 9,370 in May 2020. Despite easing back further from November’s peak level in January, mortgage approvals for house purchases were still at the third highest level in more than 13 years.

“Other recent survey evidence suggests housing market activity may be starting to lose momentum, with the latest lockdown adding to slowing pressures. The January RICS residential monthly survey reported a ‘generally weaker trend in activity’ and that the pandemic is ‘deterring would-be buyers and vendors’. The survey revealed that buyer enquiries fell in January for the first time in eight months while new properties coming on to the market declined for the first time since May. There was also a fall in agreed sales in January.”

Outlook for the UK housing market

Howard Archer adds: “The EY ITEM Club has frequently expressed belief that the current elevated housing market activity and robust prices will prove unsustainable. The EY ITEM Club believes that the recent marked strengthening in the housing market has been disproportionate given the economy’s significant contraction over 2020 and rising unemployment.

“The support to the housing market coming from the original rise in the Stamp Duty threshold through to 31 March had recently started to wane. However, the Chancellor extended the raising of the Stamp Duty threshold to £500,000 to the end of June in the 3 March Budget and then to £250,000 to the end of September. Additionally, he introduced a mortgage guarantee scheme to help people with small deposits get on to the property ladder.

“While this extension will likely provide near-term support to housing market activity and prices, the EY ITEM Club still believes that the housing market is still likely to come under mounting pressure over the coming months.

“The economy seems headed for clear contraction in the first quarter of 2021 as a result of the current lockdown. Meanwhile, unemployment is continuing to rise, albeit modestly.

“The economy looks set to see decent recovery develop from the second quarter as restrictions on activity are gradually eased. Nevertheless, unemployment is likely to keep rising slowly despite the further extension of the furlough scheme to the end of September. Earnings growth looks likely to be limited and 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 correct over the second half of the year and will fall by around 3% over 2021. A fall of 5% had been expected but this has been revised due to the further supportive housing market measures announced in the Budget.

“The EY ITEM Club expects housing market activity to start gradually improving early on in 2022 allowing prices to stabilise 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.”