British house prices end 2020 on record high, but property boom cools

Average home now worth £253,374, as monthly growth in prices slows

A terrace of residential houses in the Dulwich district in view of skyscrapers in the City of London, U.K., on Tuesday, Nov. 24, 2020. Asking prices for U.K. homes slipped this month as owners sought to get sales agreed in time to benefit from a temporary tax cut. Photographer: Simon Dawson/Bloomberg Photographer: Simon Dawson/Bloomberg

The average British house price ended 2020 on a record high of £253,374 ($344,137), according to Halifax, but monthly house price growth slowed to 0.2 per cent as Britain’s Covid-fuelled property boom cooled.

House prices recorded a 6 per cent annual rise in December, according to the Halifax House Price Index, ending a tumultuous year that saw the sector shutdown during the first lockdown at the start of the pandemic.

However, the 0.2 per cent monthly increase marks a sharp decline from the 1 per cent rise recorded in November and is the lowest level seen since the surge in prices began during the summer.

Russell Galley, managing director of Halifax, said 2020 was a tale of two distinct halves for the housing market.

"Following a strong start, the first half was dominated by the restrictions on movement due to Covid-19, and prices were subsequently down 0.5 per cent at mid-year as the market effectively ground to a halt," said Mr Galley.

“However, when the market reopened, prices soared as a result of pent-up demand, a desire amongst buyers for greater space and the time-limited incentive of the stamp duty holiday.”

British mortgage approvals soared to their highest level in 13 years in November when most of the country was in lockdown, according to the Bank of England.

UK lenders approved 104,969 mortgages in November – the highest level since the financial crisis – following a surge in market activity over the summer.

The boom was driven by pent-up demand following the first lockdown at the height of the pandemic that shuttered the sector, and UK finance minister Rishi Sunak's Stamp Duty Land Tax holiday, which offers buyers savings of up to £15,000.

Despite the pandemic, there were 715,300 house purchase approvals in the period up to November, close to the same number over the same period in 2019.

House prices were 2.6 per cent higher in the fourth quarter of the year compared to the preceding three months, despite the slower growth seen in December.

The strength in the housing market contrasts sharply with the wider economy, which is battling falling output and rising unemployment, with UK lender Nationwide saying the outlook for prices this year is highly uncertain.

Mr Galley said the high mortgage approval levels indicate there may be enough residual strength in the market to sustain prices in the near term up to the deadline for the stamp duty holiday and the scaling back of a help-to-buy scheme at the end of March.

“However, with the pace of the UK’s economic recovery expected to be constrained by the renewed national lockdown, and unemployment widely predicted to rise in the coming months, downward pressure on house prices remains likely as we move through 2021," Mr Galley said.