Property UK: House prices start to soften as Stamp Duty holiday draws to a close

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Property UK: House prices start to soften as Stamp Duty holiday draws to a close

One of the UK’s biggest mortgage lenders, the Nationwide Building Society released their latest house price index this morning, which suggested tha

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One of the UK’s biggest mortgage lenders, the Nationwide Building Society released their latest house price index this morning, which suggested that house prices fell by 0.3 percent in January. This is the first monthly fall in house prices since June, when the current stamp duty holiday was announced, as well as a decrease on the 0.9 percent rise in house prices seen in December 2020.

From an annual price growth perspective, average house prices grew 6.4 percent in January representing a slight drop from the 7.3 percent year on year figure recorded in December.

The Nationwide house price index is based on data collected at the mortgage approval stage, meaning it provides a timely and industry respected ‘temperature check’ in terms of property values and market activity.

Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist explained: “To a large extent, the slowdown probably reflects a tapering of demand ahead of the end of the stamp duty holiday, which prompted many people considering a house move to bring forward their purchase. While the stamp duty holiday is not due to expire until the end of March, activity would be expected to weaken well before that, given that the purchase process typically takes several months.

“The typical relationship between the housing market and broader economic trends has broken down over the past nine months. This is because many peoples’ housing needs have changed as a direct result of the pandemic, with many opting to move to less densely populated locations or property types, despite the sharp economic slowdown and the uncertain outlook.”

Robert goes on to highlight: “The total number of mortgages approved for house purchases in 2020 actually exceeded the number approved in 2019, and house price growth ended 2020 at a six-year high, even though the economy was probably around 10 percent smaller than at the start of 2020, with the unemployment rate around a percentage point higher.

“Looking ahead, shifts in housing preferences are likely to continue to provide some support for the market. However, if the stamp duty holiday ends as scheduled, and labour market conditions continue to weaken as most analysts expect, housing market activity is likely to slow, perhaps sharply, in the coming months.”

Regardless of the economic headwinds of 2020, the latest English Housing Survey, recently published by the Ministry of Housing, Communities and Local Government (MHCLG) suggests that there has been an increase in home ownership in 2020 with 64.6 percent of households being owner occupiers, compared to 63.8 percent in 2019.

This is the third year in a row that the home ownership rate has increased, although it remains well below the 2003 peak of 70.9 percent.


Despite the surprising levels of buyer demand since last summer, Guy Harrington, CEO of residential lender Glenhawk believes that the bubble may burst in the not-too-distant future: “Despite a third lockdown, pent up demand, changing attitudes towards urban living and the stampede to benefit from the stamp duty holiday all continue to fuel transactions as well as price growth. However, cracks are finally beginning to appear as the economic backdrop continues to deteriorate and stamp duty help draws to a close.”

Guy suggested: “An environment of new austerity measures and falling household income would likely quickly reverse the house price gains we have seen over the past year, as mortgage providers could be less flexible leading to transactions drying up.”

Jeremy Leaf, former RICS residential chairman observed: “The slowing of the pace of prices rises is no surprise and is what we have been seeing on the high street since Christmas. The market is catching up with itself as the chances of buyers and sellers beating the stamp duty deadline by the end of March recede, even if a withdrawal is phased, as seems possible now.

“Nevertheless, we expect a softening in prices and transaction numbers rather than a major correction. Most sales arranged are progressing to exchange of contracts without renegotiation, and movement restrictions only build up more pent-up demand, to say nothing of the shortage of listings, which only increase upward pressure on price.”

Andrew Montlake, managing director of London mortgage broker Coreco suggested that today’s Nationwide figures “May well be the first signs of an overall softening in house price growth from the extraordinary growth of last year.”

Andrew believes that as buyers start to look beyond the end of the stamp duty holiday, it’s possible that the previously heated market will “calm over the first half of the year”, although he expects this to be short-lived, and said: “There is still a fundamental shortage of available property for a growing population as well as pent-up demand from first-time buyers and the self-employed who have struggled to obtain a mortgage due to the COVID-19 pandemic.

“These buyers will undoubtedly return to the market as lender start to ease their Covid-related criteria.”

Andrew added: “Overall, we expect property prices to be rather benign this year, with regional variations leading to a house price growth ratio between a decrease of two percent in some areas, and up to per cent growth in others.”

For those who are actively looking for their next home but are yet to arrange their mortgage or put an offer forward on a property, what does all of this mean?

Mark Harris, chief executive of mortgage broker SPF Private Clients predicts: “The next few months will be interesting. As we head towards the deadline for taking advantage of the stamp duty holiday, lenders are navigating a fine line between the need for volume and market share versus risk appetite and service.

“There is a certain amount of chopping and changing on rates and products as lenders deal with unprecedented circumstances. However, with interest rates unlikely to rise anytime soon, mortgage rates should remain competitive.”

It seems that perhaps waiting a few weeks for demand and prices to cool after the end of March – if the stamp duty holiday isn’t extended, of course – may prove to be a prudent decision, particularly coupled with increased access to near record-low mortgage rates.

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