British house prices soared 8.5 per cent in 2020 to an average record high of £252,000 ($350,738), as the market benefited from a temporary tax break and pandemic-induced demand for more space, according to government data.
House prices rose at their fastest annual rate in December since October 2014 as the mini housing boom gained momentum, according to the Office for National Statistics’ House Price Index, with the average cost of homes rising the most in Wales, by 10.7 per cent, followed by England’s rise of 8.5 per cent.
The surge reflects pent-up demand following lockdowns at the height of the pandemic, UK finance minister Rishi Sunak's stamp duty land tax holiday, unveiled in July, as well as house buyers looking for more space.
“In our UK HPI data, we have seen the average price of detached properties increase by 10 per cent in the year to December 2020, in comparison with flats and maisonettes increasing by 5 per cent over the same period,” the ONS said on Wednesday.
Britain’s housing market saw more mortgages approved in 2020 than in any year since 2007, according to the Bank of England, with the strong lending figures attributed to the temporary tax break which allows buyers to save up to £15,000.
While the tax cut expires on March 31, there is wide speculation Mr Sunak will either extend the holiday in his March 3 budget, with the Institute for Fiscal Studies calling for it to be scrapped altogether.
There are already signs the end of the tax break will dampen the market, with Halifax reporting a 0.3 per cent drop in the average British house price to £251,968 in January from December, the biggest monthly fall since April last year.
“There are some early signs that the upturn in the housing market could be running out of steam, with the annual rate of house price inflation cooling to its lowest level since August,” Russell Galley, managing director of Halifax, said earlier this month.
The deadline for the end of the stamp duty holiday has caused a huge backlog in deals in the property market with thousands of transactions collapsing.
One in five of the 457,358 purchases made subject to contract at the end of 2020 are likely to fall through, according to property analysts Twentyci, while 31,250 of the 125,000 sales agreed in January are likely be abandoned, causing losses for homebuyers, sellers and service providers.
The strengthening pound may also dampen investor sentiment from overseas, with sterling rising to a 10-month high against the euro on Wednesday as investors bet Britain's Covid-19 vaccinations would help the economy recover quickly.
The pound rose as much as 0.3 per cent against the euro to €1.149 on Wednesday morning, its highest level since April 2020. It dipped 0.26 per cent against the dollar to $1.387 at 10.36am London time, falling about 0.5 per cent from its highest level since April 2018 on Tuesday.