Press release

1 Dec 2021 London, GB

Another strong gain in house prices points to market shrugging off stamp duty rise – EY ITEM Club comments

The latest numbers from Nationwide showed house prices rising 0.9% month-on-month (m/m) in November, exceeding October’s 0.7% m/m increase and lifting annual growth back into double-figures.

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  • The latest numbers from Nationwide showed house prices rising 0.9% month-on-month (m/m) in November, exceeding October’s 0.7% m/m increase and lifting annual growth back into double-figures.
  • In theory, stamp duty returning to its pre-pandemic level on 1 October should have weighed on house prices. But while there have been some signs of cooling in housing market activity, any stamp duty effect on values appears to have been countered by positives such as changing housing preferences and a strong jobs market.
  • House price growth is likely to slow, but the EY ITEM Club thinks that any fall in the near term is unlikely. A higher level of home working will support demand for larger properties, with demand facilitated by the substantial savings built up by households during the pandemic. Mortgage rates fell to a record low in October. And uncertainty stemming from the new Omicron COVID-19 variant reinforces the EY ITEM Club’s expectation that the MPC will hold off raising interest rates until next year.

Martin Beck, senior economic advisor to the EY ITEM Club, says:

“The latest numbers from Nationwide showed house price growth accelerating to 0.9% month-on-month in November from October’s 0.7%. This left annual growth at 10% and average prices almost 15% above the level in March 2020 when the pandemic began.

“It appears that any downward pressure on property prices from stamp duty returning to its pre-pandemic level at the start of October has been countered by other factors. Granted, the after-effects of the tax holiday’s end have made their presence felt in some housing indicators. According to HMRC, 76,930 properties were transacted in October, well down on recent highs and around one-fifth below the pre-pandemic norm. And mortgage approvals fell in October fell to 67,199, the lowest since July 2020. Moreover, stamp duty back at its normal level is not the only headwind facing the housing market: household income growth faces pressures from higher inflation and tax rises, while uncertainty stemming from the new Omicron variant could hold back potential buyers until the situation is clearer.

“However, what has been a measured decline in mortgage approvals since the summer bodes well for the housing market avoiding a significant correction now that stamp duty has returned to its normal level. And demand for properties isn’t out of supports either. The pandemic appears to have prompted a structural increase in demand for houses from people seeking more outdoor space and room to work from home – the ‘race for space’. That demand is being facilitated by the substantial ‘excess’ savings accumulated by households during lockdowns – which rose to an estimated £180bn in the autumn – and a jobs market emerging from the pandemic in a remarkably little-damaged date.

“Moreover, despite the MPC adopting a more hawkish tone on the prospect of interest rate rises, mortgage rates fell to a record low in October. And uncertainty stemming from the new Omicron variant reinforces the EY ITEM Club’s expectation that the MPC will hold off raising rates until next year. So, while house price growth is likely to slow during 2022, an outright fall seems unlikely.”