UK house prices accelerate 2.1% in August despite tax break end

Price rise is second largest gain in 15 years with shortage of homes bolstering market

Property values are now 13 per cent higher than before the pandemic with the average house price now £248,857. Bloomberg

British house prices rose 2.1 per cent in August on the month, indicating robust demand and a shortage of homes for sales are boosting the market despite the tapering of the stamp duty holiday on purchases.

The price increase is the second largest gain in 15 years and follows a 0.6 per cent decline in July when the easing of the tax break left buyers of more expensive homes with a bigger levy to pay.

The annual pace of growth accelerated to 11 per cent from 10.5 per cent, with values now 13 per cent higher than before the pandemic and the average house price nearing the £350,000 ($481,867) mark at £248,857.

Robert Gardner, Nationwide's chief economist, described the August bounce back as “surprising” because the tapering of stamp duty relief in England at the end of June was expected to “take some of the heat out of the market".

“The monthly price increase was substantial — at 2.1 per cent, it was the second largest monthly gain in 15 years after the 2.3 per cent monthly rise recorded in April this year,” Mr Gardner said.

“The strength may reflect strong demand from those buying a property priced between £125,000 and £250,000 who are looking to take advantage of the stamp duty relief in place until the end of September, though the maximum savings are substantially lower - £2,500 compared to a maximum saving of £15,000 on a property valued at £500,000 before the stamp duty relief in England tapered.”

Mr Gardner said a lack of supply was also likely to have been a key factor behind August’s price increase, with estate agents reporting low numbers of properties on their books.

Under the tax incentive programme introduced by Chancellor of the Exchequer Rishi Sunak in July last year, the first £500,000 of any property purchase in England or Northern Ireland was exempt from stamp duty until the end of June, with similar measures offered in Scotland and Wales.

A £250,000 tax-free allowance will expire on September 30 in England and Northern Ireland, with most experts expecting the market to slow once the incentive is removed.

Mortgage approvals — an indicator of future activity — fell for a second month in July, with British lenders approving 75,152 loans a drop of 6.4 per cent from the 80,272 recorded in June — the lowest level in a year, according to Bank of England data.

But mortgage approvals remained well above pre-pandemic levels, with Mr Gardner expecting underlying demand to remain solid in the near term.

This comes as business confidence hit its highest level since April 2017 in August, according to a survey by Lloyds Bank, amid hopes the economy is recovering strongly to pre-pandemic levels despite concerns about staff shortages and supply chain challenges.

“Consumer confidence has rebounded in recent months while borrowing costs remain low,” Mr Gardner said.

“This, combined with the lack of supply on the market, suggests continued support for house prices.”

A recent report from the think tank, the Resolution Foundation, said it “was wide of the mark” to suggest the tax break was the sole driver of rising prices.

Instead the study found that pandemic-related factors, such as low interest rates and a lockdown-induced desire for more space would continue to drive up prices.

Looking further ahead, however, the picture is less clear with Nationwide expecting activity to soften for a period after the stamp duty holiday expires at the end of September.

“Moreover, underlying demand is likely to soften around the turn of the year if unemployment rises, as most analysts expect, when government support schemes wind down. But even this is far from assured,” Mr Gardner said.

“The labour market has remained remarkably resilient to date and, even if it does weaken, there is scope for shifts in housing preferences as a result of the pandemic to continue to support activity for some time yet.