According to the latest ONS statistics, house prices continued to rocket in September, and analysts predict that they will continue climbing upwards. For the first time since coronavirus took hold of the UK, the new build property market has also seen a slight uptick in prices.
Highlights from the data:
- UK average house prices increased by 4.7% over the year to September 2020, up from 3.0% in August 2020, to stand at a record high of £245,000.
- Average house prices increased over the year in England to £262,000 (4.9%), Wales to £171,000 (3.8%), Scotland to £162,000 (4.3%) and Northern Ireland to £143,000 (2.4%).
- London’s average house prices hit a record high of £496,000 in September 2020.
- The Office for National Statistics (ONS) has released a public statementon the coronavirus (COVID-19) and the production of statistics; Section 7: Measuring the data describes the situation in relation to the UK House Price Index (HPI).
At any other time, this would be cause for celebration. However, analysts argue that the results have been eclipsed by even better news. Andrew Montlake, Managing Director at the UK-wide mortgage broker, Coreco, said: “Record highs all round but ironically they’re not the main story right now. News of a vaccine that few expected so early could transform the trajectory of the property market during 2021.
“We were all bracing ourselves for a major reversal in recent house price growth but the vaccine could provide a shot into the property market’s arm. There will still be increased unemployment given the impact of the pandemic on the economy but a vaccine could see sentiment keep its head above the surface, which for the property market is key.
“For now, the property market continues to stall, and first time buyers looking to borrow at higher loan to values remain on a hiding to nothing. Nevertheless, there is still an acceptable flow of transactions for now, which is being driven by landlords, holiday home buyers and those with secure jobs and decent equity in their homes.”
Over the past four years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England. The beginning of 2020 saw a pickup in annual growth in the housing market before the coronavirus restrictions were put in place at the end of March 2020.
Several factors confound the statistics. The ONS said that property transactions completed at the beginning of the year may have been more concentrated than usual among those without complicating factors, such as a chain. For example, first-time buyers – typically at the lower end of the price scale – may have been freer to complete transactions than former owner occupiers, who may have had to co-ordinate multiple sales during lockdown.
Recent price increases may reflect a range of factors including pent-up demand, some possible changes in housing preferences since the pandemic and a response to the changes made to property transaction taxes across the nations.
Nigel Purves, CEO of Wayhome, said: “This rise shown in the latest ONS House Price Index figures is likely being driven by one main factor, the Chancellor’s stamp duty holiday – and would-be buyers rushing to complete before it ends in March next year.
“It will be interesting to see the effect of the second lockdown on prices as the housing market will remain open this time – potentially providing a welcome distraction for those stuck indoors, revaluating what they want from their home.”
At the moment, the signs are good. The Bank of England’s Money and Credit September 2020 release reported that mortgage approvals for house purchases, an indicator of future lending, increased further in September 2020 to 91,500, the highest since September 2007.
On 8 July 2020, the Chancellor of the Exchequer announced a suspension of the tax paid on property purchases with immediate effect in England and Northern Ireland, coming into effect slightly later on 15 July in Scotland and 27 July in Wales. The tax holiday is due to end on 31 March 2021 across the whole of the UK. This may allow sellers to request higher prices as buyers’ overall costs are reduced.
The average UK house price was £245,000 in September 2020; this is £11,000 higher than in September 2019.
Paul Stockwell, Chief Commercial Officer at Gatehouse Bank, said: “As predicted, house price growth has intensified in September fuelled by pent-up demand coupled with significant cost-savings to buyers presented by the stamp duty holiday. I expect this trend will continue in the short term as buyers feel the urgency to secure property deals and allow time for completion before the tax break ends.
“What began as a disastrous year for the property industry has been turned on its head by government interventions, creating a surge of demand predominantly in England and Northern Ireland where the stamp duty reduction is greatest. This in itself has presented new challenges to the industry with property portal Zoopla estimating 418,000 sales in the pipeline nationally, 50% more than the typical number for this time of year.
“Bank of England data has already indicated that mortgage approvals in September represented the highest levels of agreed borrowing since before the Global Financial Crisis more than a decade ago. But as pressure on the property industry resources grows, it will be interesting to see if the Government concedes to requests from the industry to extend the stamp duty holiday and alleviate the expected congestion in the new year.”
On a non-seasonally adjusted basis, average house prices in the UK increased by 1.7% between August and September 2020, compared with an increase of 0.1% in the same period a year ago.
On a seasonally adjusted basis, average house prices in the UK increased by 1.8% between August and September 2020, following an increase of 1.1% in the previous month.
The South West was the English region with the highest annual house price growth, with average prices increasing by 6.4% to £275,000 in the year to September 2020, up from 3.2% in August 2020.
The lowest annual growth was in the North East, where average prices increased by 3.3% over the year to September 2020.
London house prices remained the most expensive at an average of £496,000; this is a record high for London. The North East continued to have the lowest average house price, at £136,000, and is the only English region yet to surpass its pre-economic downturn peak of July 2007.
While the world may have changed since these figures were published, they remain an important barometer for the market.
Anna Clare Harper, CEO of asset manager SPI Capital, said: “For many, September feels like the distant past, but this index remains interesting and useful, since it represents a more complete picture than comparable releases. A 4.7% increase in house prices, with mortgage approvals at their highest level since 2007, suggests a ‘mini boom’. Many feel this will be short lived, given economic circumstances and forecasts.
“However, the ‘fundamental’ drivers of housing demand are strong, and we are in an environment of low interest rates, with reduced rates of new buildings coming onto the market and limited existing stock.
“Ultimately, increasing house prices are being driven by a combination of new priorities and new policy. Notably, many existing homeowners were spurred on to move by the combination of needing more space and the temporary Stamp Duty changes. As a result, and perhaps unsurprisingly, the increase in house prices was led by detached and semi-detached properties.
“It is interesting to note that new-build properties lagged behind existing properties, falling by 1.9%, despite the influence of the Help to Buy scheme.
“Returning to fundamentals – for investors and homebuyers alike, the important thing to remember is that capital growth is a great bonus, but shouldn’t be relied on just because lending is cheap.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, added: “This most comprehensive of all the housing market surveys, though a little dated, underlines what we were seeing at the tail end of the aftermath of the first lockdown mini-boom.
“Since then, activity cooled and was replaced by a more cautious approach before the prospect of a Covid-19 vaccine reinvigorated the market. The stamp duty concession has proved to be a particularly important contributory factor and will continue to be so until prospects of meeting the spring deadline recede, unless of course the Chancellor is minded to reconsider.
“Even the prospect of further lockdowns and Christmas distractions are not deterring many from trying to take maximum advantage.”
Prices for new builds rose 0.1%, increasing to £286,856 in July 2020, up marginally from £286,659 in June 2020.
Andy Sommerville, Director of Search Acumen, said: “This latest data shows that the recovery in house prices is spreading across different types of properties, with new builds experiencing a slight uplift.
“Price rises for new builds have been mainly driven by prospective buyers rushing to secure the financial benefits on offer through the higher Stamp Duty threshold. The marginal savings the holiday offers may have been enough to trigger consumers to bring purchases forward considerably.
“Concentrated activity in the new build segment of the market may have also been supported by people taking advantage of the Help to Buy scheme before it is closed off to second-time buyers in March 2021.
“Going forward, changing consumer preferences are likely to reduce demand for new builds due to these properties often being flats located in cities. Greater adoption of remote working may drive the traditional new build buyer base of young professionals towards larger properties with access to green space.
“Severe headwinds facing the UK economy may dampen activity in the new build market in the medium term. Lenders are reacting to further anticipated economic disruption by continuing to rein in high loan-to-value products and reducing their exposure to borrowers with access to little housing equity or smaller deposits. This is likely to pose a barrier to entry for first time buyers.
“To better understand the changing landscape, improving access and the quality of data available to developers is crucial. Consuming data earlier in the development process would help builders more easily meet a 28 day turn around. This should increase confidence in the market and boost the supply of new build housing across the UK.”
— to www.showhouse.co.uk