UK housing boom loses steam as tax break winds down

House prices fell 0.5% on the month in June but were still up 8.8% on the year

A steam train from the Great Central Railway passes between new housing developments in Loughborough, UK. Britain's housing market accelerated after finance minister Rishi Sunak unveiled a tax break in July last year. Bloomberg
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British house prices dipped 0.5 per cent in June, falling in monthly terms for the first time since January as the government began scaling back the stamp duty holiday.

Despite the housing boom appearing to cool, prices were still 8.8 per cent higher than in the same month a year earlier, with the average home now worth £260,358 ($360,270), according to the latest Halifax House Price Index.

Russell Galley, managing director of Halifax, said it was important to put such a moderate decrease in context, with average prices still more than £21,000 higher than this time last year, following a broadly unprecedented period of gains.

“With the stamp duty holiday now being phased out, it was predicted the market might start to lose some steam entering the latter half of the year, and it’s unlikely that those with mortgages approved in the early months of summer expected to benefit from the maximum tax break, given the time needed to complete transactions”, Mr Galley said on Wednesday.

Britain's housing market has been spurred on by Chancellor of the Exchequer Rishi Sunak's pandemic-induced, emergency tax break for buyers. The tax exemption on the first £500,000 of a property-related purchase in England or Northern Ireland offered buyers a saving of up to £15,000.

The move came at a time when many were already seeking bigger properties as many worked from during the Covid-19 crisis.

Detached homes now cost more than £500,000 on average, according to Halifax - £200,000 more expensive that the average semi-detached property.

A £250,000 pound tax-free allowance will run until the end of September, before the tax incentive is scrapped altogether.

Mr Galley predicted that demand from people looking for bigger homes would not fade entirely as the economy recovers, and that the shortage of properties on the market would also support prices.

"However, we would still expect annual growth to have slowed somewhat more by the end of the year, with unemployment expected to edge higher as job support measures unwind, and the peak of buyer demand now likely to have passed", he said.

Tom Bill, head of UK Residential Research at global property consultancy Knight Frank, said the figures from Halifax indicate that the second half of the year is unlikely to bear much resemblance to the first half for the UK housing market.

“We expect house price growth to narrow to mid-single digits as tax breaks wind down and supply picks up”, he said.

Mr Bill said as well as the tax break, house prices were driven higher by a supply squeeze as the UK came out of the pandemic.

"If you add in a stamp duty holiday and the fact pent-up demand had been building for five years against the uncertain backdrop of Brexit, the result was a burst of house price inflation”, he said.

Prices in London rose by a below-average 2.9 per cent in annual terms in June, slowing from May, while all other regions, except for the Midlands, recorded double-digit gains, with house prices in Wales up 12 per cent.

The Halifax report contrasts with the findings of Nationwide Building Society, which recorded 13.4% annual price growth last month, the strongest since November 2004. Mortgage approvals rose in May.

Updated: July 07, 2021, 8:09 AM