- The latest numbers from Nationwide showed house prices rising a surprisingly strong 2.1% month-on-month (m/m) in August. This pushed up annual growth to 11% from 10.5% in July. Buyers lining up transactions before the stamp duty threshold returns to its normal level of £125,000 from October may have supported demand and prices.
- Once the stamp duty holiday has ended, demand will likely soften and a modest correction in prices is expected. But the economic consequences of the pandemic, including increased demand for larger properties in a world of more home working and significant household savings, may keep house prices persistently higher than otherwise. The odds of a significant downturn in the housing market anytime soon are low.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“The latest numbers from Nationwide showed house prices growing by 2.1% month-on-month in August. This was the second largest gain in 15 years and up from 0.6% month-on-month in July. August’s increase left the annual increase in prices at 11%, compared to July’s 10.5%.
“Although the temporary stamp duty saving introduced last year was decreased on 30 June, the nil-rate threshold will not return to the original £125,000 level until 1 October. So buyers lining up transactions and seeking to benefit from a lower tax bill before the October deadline may have supported demand and prices in August.
“Other factors also played a role in August’s rise in prices, and these are likely to persist for the foreseeable future. Consumer confidence has remained high and buyers have continued to benefit from ultra-low mortgage rates. Meanwhile, the pandemic has had what will likely be long-lasting effects on property preferences, including raising demand for larger homes in a world of more home working. Combined with the fuel for property deposits provided by the substantial savings accumulated by some households during lockdowns, there are plenty of props supporting the housing market.
“That said, forces affecting the housing market are not all positive. On measures such as the ratio of house prices to household incomes, affordability looks increasingly stretched. And, despite a recovering economy, higher inflation and the prospect of some increase in unemployment when the furlough scheme ends means the outlook for household income growth is clouded. But the odds of a significant downturn in house prices anytime soon looks small.”