- Nationwide reported house prices gained strong upward momentum in April as they rose 2.1% month-on-month (m/m) after a dip of 0.3% in March. This was the strongest monthly gain in house prices reported by Nationwide since February 2004
- The year-on-year (y/y) gain in house prices rebounded to a four-month high of 7.1% after slowing to 5.7% in March from a peak of 7.3% in December (the highest since November 2014)
- House prices strengthened over the second half of 2020 as market activity was buoyed by the release of pent-up demand following the easing of restrictions from mid-May last year, people re-assessing housing needs in the wake of lockdowns and the temporary raising of the Stamp Duty threshold
- However, while still relatively elevated, housing market activity and prices had come off their highs early on in 2021 before the Chancellor announced supportive measures in the Budget on 3 March
- Latest survey evidence suggests that the Budget measures have given the market renewed impetus. Key measures include extending the Stamp Duty threshold and introducing a low-deposit mortgage scheme. The extension of the jobs furlough scheme will also likely help the housing market
- Consequently, the EY ITEM Club now believes the housing market is likely to see near-term vigour and renewed firming of prices. Nevertheless, the EY ITEM Club says the strength of the housing market is outsized relative to the economic fundamentals, and the level of prices increases will ultimately prove unsustainable
- The EY ITEM Club suspects house prices will lose momentum again later on this year and could well be flat y/y by early 2022 with some quarters of falling prices as the Stamp Duty benefit ends, unemployment likely rises modestly and pent-up demand wanes. There may well also be growing expectations that interest rates could begin to rise.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“Nationwide reported that house prices rose 2.1% month-on-month in April, recording the largest monthly increase since February 2004. This followed a dip of 0.3% month-on-month in March. House prices had previously bounced back 0.7% month-on-month in February after a dip of 0.1% month-on-month in January, which had been the first monthly fall in house prices since last June.
“House prices had seen a marked pick-up through the latter months of 2020 as they recorded month-on-month increases in the range of 0.9%-2.0% for six months running between July and December.
“The year-on-year change in house prices rebounded to a four-month high of 7.1% this month after moderating to 5.7% in March from 6.9% in February and a peak of 7.3% in December, which had been the highest since November 2014. Annual house price inflation had previously risen to December’s peak level from 1.5% in July 2020 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 been buoyant but was slowing before March Budget measures
Howard Archer continues: “The recent marked strength in house prices has occurred amid a strong pick-up in housing market activity through the second half of 2020 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 introduced on 23 March 2020 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 boosting activity, as people reassess their housing needs and preferences as a result of 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.
“However, while still being relatively elevated, housing market activity had come off its highs before the Chancellor announced supportive measures in the Budget on 3 March.
“The Bank of England reported that mortgage approvals for house purchases eased back for a third month running in February, and at an increased rate, but were still at the sixth highest level in more than 13 years. Approvals dipped to a six-month low of 87,669 in February from 97,350 in January, 101,252 in December and 103,708 in November, which had been the highest since August 2007. Approvals had previously risen for six successive months through to November’s more-than 13-year high from a record low of 9,432 in May 2020.
“The latest survey evidence suggests the Budget measures have given the housing market renewed life. The March RICS residential survey revealed that all activity elements strengthened including buyer enquiries, new properties coming on to the market and newly agreed sales. Rightmove reported a marked pick up in housing market activity in April and higher asking prices."
Outlook for the UK housing market
Howard Archer comments: “Following the Budget, the EY ITEM Club now expects the housing market to show vigour in the near term and a renewed firming of prices. The key new Budget measures include the extension of the full Stamp Duty threshold increase from end-March to end-June, and the introduction of a mortgage guarantee scheme for people with low deposits. With the furlough scheme extended to the end of September, unemployment is now likely to rise by less than previously expected, which will also provide some support to the housing market.
“However, the EY ITEM Club is doubtful that this renewed vigour will be sustained for an extended period as the strengthening of the housing market has been outsized relative to economic fundamentals.
“The EY ITEM Club suspects house prices will lose momentum again later on this year and could well be flat year-on-year by early 2022 with some quarters of falling prices as the Stamp Duty benefit ends, unemployment rises and there is a waning of pent-up demand. Housing market activity may also be affected from the latter months of 2021 by growing expectations that interest rates could start to rise before long.”