- The latest numbers from Nationwide showed house prices rising a further 0.7% in June. This lifted the annual increase to 13.4%, the highest since November 2004. A boost to demand from buyers rushing to beat the phasing out of the stamp duty holiday no doubt played a role in pushing prices up
- The withdrawal of the tax concession should, all else equal, cause prices to fall. But other forces will work in the opposite direction, at least in the short term. The impact of the pandemic on the economy continues to fall disproportionately on younger age groups more likely to rent than own and this, in turn, is likely to insulate the housing market. The burden of mortgage interest payments relative to incomes is currently hovering around a record low. And the substantial savings accumulated by some households during lockdowns offers the means of funding bigger deposits
- The outlook for prices faces some headwinds. The supply of properties may be boosted if the end of the evictions ban on 31 May prompts some landlords to sell, or if claims of a decline in the numbers of foreign workers in the UK post-pandemic prove correct. Higher inflation and the risk of a rise in unemployment when the furlough scheme ends also mean the outlook for growth in household incomes is not all positive. But for the time being, the housing market is likely to continue to stay on the upside.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“The latest numbers from Nationwide showed house prices rising a further 0.7% in June, taking the average asking price to £245,432. June’s rise left the annual increase in prices at 13.4%, the biggest year-on-year gain since the end of 2004. Comparisons with unusually weak prices in June 2020 flattered annual growth, but underlying momentum remained strong.
“Property prices continue to benefit from a cocktail of forces propelling demand. The extension of the stamp duty holiday looks to have prompted interest among potential buyers before the tax holiday begins to be phased out on 30 June. That older and higher income – and generally home-owning – households have emerged from the pandemic in a relatively good economic state continues to insulate the property market from the impact of COVID-19 too. For example, between February 2020 and May 2021, the number of people aged 35 and older in employment fell by only 19,000 or 0.1%; among those aged 18-34, who are much more likely to rent than own their own homes, employment fell by 410,000 or 4%.
“Low mortgage rates continue to support affordability in the face of ever higher prices – the latest data showed interest payments falling to 3.5% of average household incomes, the lowest since records began in 1987. The substantial savings accumulated by some households during lockdowns is funding larger deposits on properties. Expectations of rapid price rises could also mean the housing market may attract more people buying for speculative reasons rather than the need for a home.
“Most of these factors will persist for some time, suggesting that the partial end of the stamp duty holiday may not exert too much of a drag on housing demand and house prices. And the mortgage guarantee scheme which came into effect in April may partially compensate as a means of supporting values. In addition to encouraging transactions, the scheme means the Government effectively taking a stake in the housing market, which could fuel expectations that policymakers won’t allow prices to fall.
“There are some headwinds beyond the end of the stamp duty holiday. The end of the evictions ban on 31 May could prompt some landlords to sell to make up for rent arrears they have not been able to address until now, raising the supply of properties and weighing on prices. A similar outcome might arise if suggestions of a permanent decline in the number of foreign-born workers in the UK during the pandemic prove true. And, despite a rapidly recovering economy, higher inflation and the prospect of an increase in unemployment when the furlough scheme ends means the outlook for household income growth is not all positive.
“But for the time being, the housing market is likely to continue to be on the upside.”