British house prices rose 7.3 per cent in 2020, the highest growth in six years, as the property market surged amid a raft of policy measures and a shift in how people want to live.
Prices ended the year 5.3 per cent higher than in March and 0.8 per cent up in December from the previous month, taking the average house price to £230,920 ($311,562) as the market defied the wider economic downturn.
“The resilience seen in recent quarters seemed unlikely at the start of the pandemic. Indeed, housing market activity almost ground to a complete halt during the first lockdown as the wider economy shrank by an unprecedented 26 per cent,” said Robert Gardner, Nationwide’s chief economist.
“But, since then, housing demand has been buoyed by a raft of policy measures and changing preferences in the wake of the pandemic.”
The housing market has boomed this year as buyers have looked for bigger properties or homes with gardens after the spring lockdown closed the market completely.
UK finance minister Rishi Sunak then suspended Stamp Duty Land Tax on home purchases until the end of March 2021, causing a surge in activity in the sector.
The growth continued through the summer and even during the second wave of the virus in the autumn because sales and viewings were allowed to continue when the country faced further coronavirus restrictions in November.
Mr Gardner said policy measures such as the furlough and Self Employment Income Support schemes bolstered the labour market, while a host of policy measures helped to keep the cost of borrowing down and the supply of credit flowing.
“Lenders also responded by offering payment holidays to borrowers impacted by the pandemic, helping people stay in their homes rather than potentially being forced to sell,” he said.
The pandemic itself also boosted activity, as life in lockdown and changes to working patterns led many to re-evaluate their housing needs, with Nationwide research identifying an increased demand for less densely populated locations and different property types.
“This helps to explain why detached properties have seen greater price gains in recent quarters, while flats have underperformed,” Mr Gardner said.
Looking to 2021, analysts are divided on how the property market will fare. While property website Rightmove expects asking prices to climb 4 per cent due to a backlog of demand and rush to move before the tax reduction expires at the end of March, retail bank Halifax says prices could slump as much as 5 per cent next year as unemployment rises.
Mr Gardner expects housing market activity to slow in the coming quarters, perhaps sharply, if the labour market weakens to the 7.5 per cent level quoted by Mr Sunak in November, especially once the stamp duty holiday expires at the end of March.
“The outlook remains highly uncertain. Much will depend on how the pandemic and the measures to contain it evolve as well as the efficacy of policy measures implemented to limit the damage to the wider economy,” he said.
“Behavioural shifts as a result of Covid-19 may continue to provide support for housing market activity, while the stamp duty holiday will continue to provide a near-term boost by bringing forward home moves.”