Press release

3 Nov 2021 London, GB

House prices continued to rise in October, despite end of stamp duty holiday – EY ITEM Club comments

The latest numbers from Nationwide showed house prices rose a further 0.7% month-on-month (m/m) in October, accelerating on the previous month’s 0.2% m/m. But annual growth slowed to 9.9%, the first non-double digit rise since April

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Related topics Growth COVID-19
  • The latest numbers from Nationwide showed house prices rose a further 0.7% month-on-month (m/m) in October, accelerating on the previous month’s 0.2% m/m. But annual growth slowed to 9.9%, the first non-double digit rise since April. 
  • In theory, stamp duty reverting to its pre-pandemic level on 1 October should have weighed on housing market activity and prices. But while early days, for now, that effect appears to have been offset by supportive factors such as the ‘race for space’ and high household savings.
  • How long this trend will continue is unknown. The expectation that the MPC will raise interest rates sooner rather than later is already translating into higher rates on mortgages. And household incomes are under growing pressure from rising inflation, higher energy costs and imminent tax rises. But although factors which have boosted house prices over the last year may diminish as life – and interest rates – move closer to pre-COVID-19 normality, they are unlikely to fade completely.  

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

“The latest numbers from Nationwide showed house price growth accelerating to 0.7% month-on-month (m/m) in October from September’s 0.2% m/m. This left annual growth at 9.9%, strong by historical standards, albeit the first reading not in double digits since April.  

“Prices continued to rise despite the expiry of the stamp duty holiday, which reaffirms the EY ITEM Club’s view that the tax cut was far from the only factor supporting the housing market. That said, aside from the end of the tax concession, the outlook is looking more challenging. Household income growth is under growing pressure from higher inflation and forthcoming tax rises. And mortgage rates are rising, as lenders have responded to expectations that the Bank of England will raise the official interest rate, perhaps as soon as tomorrow’s meeting. Mortgage approvals fell to a 14-month low of 72,645 in September, according to the Bank of England, down from a peak of just over 100,000 late last year, which suggests this process is already underway.

“Although some lenders have already raised rates on mortgage products, borrowing costs will be increasing from a very modest level. As of September 2021, the average interest rate on a new mortgage was the lowest since records began. And while momentum in housing market activity and mortgage demand is likely to decline, the odds of a serious correction seem low. The pandemic appears to have prompted a structural increase in demand for houses as a result of people seeking more outdoor space and more room to work from home. And that demand is being facilitated by the substantial ‘excess’ savings accumulated by households during lockdowns – which rose to an estimated £170bn in the middle of this year – and very low borrowing costs.

“The influence of these factors may diminish as life – and interest rates – move closer to pre-COVID-19 levels, but is unlikely to fade completely. Moreover, the jobs market is coming out of the crisis far less negatively affected than was widely expected.”