UK house price growth cools as stamp duty holiday phases out

Average value of a home rose 7.6% in July to £261, 221, down from 8.7% in June

For sale signs advertise residential properties in north London, Friday June 12, 2003. House prices grew at their quickest pace in almost 1 1/2 years
during the first quarter, the Royal Institution of Chartered
Surveyors said today, as Britons borrowed a record 16.2 billion
pounds against their homes. Photographer:Andy Shaw/Bloomberg News
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UK house price growth cooled in July, growing at its slowest rate since March in a signal that the tapering of the stamp duty holiday is taking momentum out of a red-hot property market.

The average value of a home rose 7.6 per cent last month to £261,221 ($363,604) compared with the same period a year ago, slower than the 8.7 per cent annual rise recorded in June, according to Halifax’s house price index.

House prices were also up 0.4 per cent on June, a rise of £1,122, with the typical price for a new purchase now £18,500 higher than a year ago.

Russell Galley, managing director of Halifax, said the fall in house price growth to its lowest level since March was expected given the strength of price inflation last summer, when the market began its recovery from the first lockdown bolstered by the start of the stamp duty holiday.

“Recent months have been characterised by historically high volumes of buyer activity, with June the busiest month for mortgage completions since 2008,” Mr Galley said.

“This has been fuelled both by the ‘race for space’ and the time-limited stamp duty break.”

Chancellor of the Exchequer Rishi Sunak first unveiled the stamp duty holiday in July last year to prop up the market after its shutdown during the first lockdown.

Originally set to expire at the end of March, Mr Sunak then extended the tax break until June 30, before it tapered downwards with the zero per cent rate now applying to only the first £250,000 of the purchase price rather than the first £500,000 until the end of September.

“Buyer activity should continue to ease over the coming months, and a steadier period for the market may lie ahead,” Mr Galley said.

Underlying demand is expected to remain solid in the near term driven by elevated consumer confidence, a shortage of homes for sale and continued low borrowing costs, a separate report by Nationwide said on July 28. The lender said the annual pace of price growth dropped to 10.5 per cent in July from a 17-year high of 13.4 per cent.

While Mr Sunak’s tax break caused prices to surge 8.5 per cent in 2020 despite the wider economy being hammered by the fallout from Covid-19, it was not the only factor driving the increase in prices.

A desire for more space and a new life outside cities inspired many to relocate as the work-from-home trend took off and people become frustrated by being stuck in smaller properties during a series of UK lockdowns.

The number of Londoners buying homes outside the UK capital soared to a record high in the first half of this year, according to a recent Hamptons report, as the pandemic encouraged residents to quit city life and buy elsewhere in Britain.

Londoners bought an estimated 61,380 homes outside the capital in the first half of 2021 – the highest figure for any six-month period since the real estate consultancy began keeping records in 2006.

It is no surprise then that London continues to lag all regions in terms of annual inflation with a gain of 2.5 per cent in July. Wales recorded the strongest price growth of 13.8 per cent, its most significant rise since 2005, while eastern England and the south-east had some of the slowest growth in the UK.

Looking ahead, Mr Galley expects momentum in the market to subside as industry figures show instructions for sale are falling and estate agents are experiencing a drop in their available stock.

“This general lack of supply should help to support prices in the near term, as will the exceptionally low cost of borrowing and continued strong customer demand,” Mr Galley said.

While uncertainty remains for employment levels as the government’s furlough scheme ends in the autumn, Mr Galley said the risks to the macro-environment are receding, as consumer confidence rises and the economy expands as restrictions are lifted.

“Overall, assuming a continuation of recent economic trends, we expect the housing market to remain solid over the next few months, with annual price growth continuing to slow but remaining well into positive territory by the end of the year,” he said.

Updated: August 06, 2021, 8:17 AM