UK house prices surged to an all-time high last month as pent-up lockdown demand and chancellor Rishi Sunak’s stamp duty cut stimulated the market.
The average UK house price rose to a record £224,123 in August, up from £220,935 in July.
Bombastic estate agents greeted the figures with glee, variously describing UK house prices as “barnstorming”, “off the richter scale” and “presenting two fingers to Covid”.
However, more sober commentators warned that the end of the furlough scheme next month and uncertain times ahead for the UK economy could restrain prices in the months ahead.
Stamp duty holiday
Sunak’s move to raise the stamp duty threshold from mid-July until 31 March 2021 has been one of the key factors in the housing markets’ swift rebound from the Covid-19 lockdown.
Lucy Pendleton, an estate agent at James Pendleton, said: “Buyers emboldened by the stamp duty holiday have been engaged in a pitch battle for property, delivering a barnstorming recovery for the market.”
Jonathan Hopper, chief executive of Garrington Property Finders, said: “The stamp duty holiday has turned into a long summer staycation for the property market.
“While the tax cut doesn’t apply to every home, it can save the buyers of higher-value properties tens of thousands of pounds – and this incentive has helped turn the market’s reboot into a rebound.”
Howard Archer, chief economist at EY Item Club, expected further short-term impact from the stamp duty holiday.
“Housing market activity may see a further pick-up in the near term providing some support to prices, as a result of the raising of the Stamp Duty threshold, along with the release of some pent-up activity following the easing of lockdown restrictions,” he said.
Nationwide said another factor stimulating demand was people looking to move after the experience of lockdown.
“Behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown,” Nationwide said.
“Prices are rising fastest among coastal and country properties as buyers planning for a new work-life balance built around less commuting seek more green space, fresh air and better value,” Hopper said.
Andrew Montlake, managing director at the UK-wide mortgage broker, Coreco, said: “There are many people whose lives and jobs are largely untouched by the pandemic who will continue to move home even as the broader economic picture deteriorates.
“What we’re also seeing is a huge amount of people looking for a second property or holiday home.”
David Westgate, chief executive at Andrews Property, said: “For certain properties in the most sought-after areas prices are going through the roof.
“Pent-up demand, the stamp duty holiday and a desire to get into more appropriate homes in the event of future lockdowns are key drivers.”
Could UK house prices fall?
Despite today’s strong figures some voices cautioned that the wider economic picture meant the housing market could be in for a bumpy landing.
Montlake said:“Two words: reality check. As strong as the property market is right now, it will not last.
“Demand is understandably strong after lockdown and the added bonus of the stamp duty holiday, but unemployment is rising by the day and the economic outlook is highly uncertain as the furlough scheme ends.
“In the final months of the year we will start to see a reversal in the current rate of house price growth, as the true impact of Covid-19 on the economy shows through.
Archer forecast house prices to fall three per cent by early 2021 when the current rally runs out of steam.
“The housing market is likely to come under pressure over the final months of 2020 when there is likely to be a significant rise in unemployment as the furlough scheme draws to a close in October.
This will not only adversely affect the fundamentals for house buyers, but also likely fuel caution on committing to buying a house.
There is also likely to be a fading of the pent-up demand effect on activity.”
Others were more hopeful that the UK house price bump would be sustainable..
Hopper said: “Intense competition for the best homes is powering up prices and the Nationwide’s data now shows a truly impressive v-shaped recovery. The key question now is whether economic headwinds blow it off course. So far, so strong.”
Pendleton said: “The end of the furlough scheme is still two months away but that remains the biggest threat to the UK’s economic recovery and the strength of the property market. A softer landing than hoped for the labour market in November and December could mean this bullish streak still has a long way to run.”