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Housing market is strong ‘but there is an underlying weakness that needs to be resolved’

UK property price growth slowed marginally last month as the stamp duty holiday came to a near end, but a drop in the number of homes being put up for sale looks set to keep driving up prices, according to the latest Royal Institution of Chartered Surveyors (RICS) survey.

The industry survey shows that the residential property price balance fell to +68 in September from a downwardly revised +72 in August.

Simon Rubinsohn, chief economist at RICS, said: “Both price and rent expectations [are] close to series highs pointing to greater pressure on affordability at a time when money markets are sensing interest rate increases coming sooner rather than later.”

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The UK property market appears to be strong on the surface but Tom Bill, head of UK residential research at Knight Frank believes that “there is an underlying weakness that needs to be resolved”.

He continued: “The imbalance between supply and demand is unsustainable and in many cases arises because prospective sellers are unable to find anywhere to buy themselves, creating a vicious circle of low supply. In some cases, they cannot even find properties to rent as a short-term option.

“There were 13 new buyers for every property listed in the UK in September. Over the last five years, the only time demand has exceeded supply to a greater extent was in January 2020, the first month of the short-lived Boris bounce.

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“The imbalance is keeping upwards pressure on prices but, like many other parts of the economy, needs to resolve itself over the next six months to ensure greater stability in the UK housing market in 2022.”

Fears that the end of stamp duty holiday would mean a tapering off in demand have evidently been disproved with demand for properties high, despite rising prices, according to Peter Beaumont.

He said: “While the ratio of average house price to average salary has never been higher, potential buyers are seizing a window of opportunity while borrowing rates remain low- before the chancellor announces measures to balance the books and the Bank of England steps in with measures to counter rising inflation.”

By MARC DA SILVA

Source: Property Industry Eye

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House prices up 3.6% across England and Wales in the year to September 2021

Average house prices increased by 3.6% across England and Wales in the year to September 2021, according to e.surv Chartered Surveyors’ House Price Index.

On a monthly basis, average property prices rose by 1.2% between August and September 2021.

Overall, e.surv found that the average price of a house in England and Wales was £328,610 at the end of September.

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The data also shows that while some regions like the North East suffered their largest fall in the annual rate of growth (down by 6.3%) over the month, other areas like Wales fared much better.

Wales comfortably out-performed the rest of the country – having the smallest fall in price growth from 12.2% down to 11.2%.

Richard Sexton, director at e.surv, said: “House price growth is clearly in retreat in headline terms but there is little evidence of prices stagnating or falling. Indeed, regionally, there are substantial pockets of resistance to overall falls in house price growth.

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“The Land Transaction Tax holiday came to an end at the end of June – but the tax savings available in Wales were not as large as in England (£2,450 in Wales vs £15,000 in England).

“This is we think a key reason potentially why the fall in prices in Wales has not been as significant as in England over the past few months. Wales therefore stands out as having the highest annual rate of price growth at 11.2%.

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“In terms of property types, it’s worth noting too that, while the pandemic drove a race for space the price of flats in September staged a small recovery with the largest gains in flat prices being seen in prime central London and in Hammersmith and Fulham.

“On September’s data, there is little evidence that home buyers are being spooked by the end of the furlough scheme. Data from government points to a resilient job market that will further underpin buyer and lender confidence.”

By Jake Carter

Source: Mortgage Introducer

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Halifax: House prices reach record high

UK house prices rose by 1.7% in September, equating to an increase of £4,400 to the value of the average property, according to the latest Halifax House Price Index.

This means that UK house prices are now at a record high of £267,500.

This month-on-month rise is the strongest increase since February 2007 and ups year-on-year house price inflation up to 7.4%.

This also reversed the recent three-month downward trend in annual growth, which had peaked at an annual rate of 9.6% in May.

Wales continued to record the strongest house price inflation of any UK region or nation, with annual growth of 11.5% in September (average house price of £194,286).

Scotland also continues to outperform the UK national average, with growth of 8.3% (average house price of £188,525).

In both nations, the equivalent stamp duty holidays came to an end at an earlier date.

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The South West remained the strongest performing region in England, with annual house price growth of 9.7% (average house price of £276,226).

The North West saw the next biggest increase, with house prices up by 9% year-on-year (average house price of £201,927), marginally ahead of Yorkshire and Humber at 8.9% (average house price of £186,815).

The weakest performing regions in terms of annual house price inflation are all to be found in the South and East of England, though these are also the areas with the highest average UK house prices.

Eastern England has seen annual growth of 7.2% (average house price of £310,664) while in the South East it is 7% (average house price of £360,795).

Greater London remains the outlier, with annual growth of just 1% (average house price of £510,515), and was again the only region or nation to record a fall in house prices over the latest rolling three-monthly period (0.1%).

Russell Galley, managing director of Halifax, said: “While the end of the stamp duty holiday in England – and a desire amongst homebuyers to close deals at speed – may have played some part in these figures, it’s important to remember that most mortgages agreed in September would not have completed before the tax break expired.

“This shows that multiple factors have played a significant role in house price developments during the pandemic.

“The ‘race-for-space’ as people changed their preferences and lifestyle choices undoubtedly had a major impact.

“Looking at price changes over the past year, prices for flats are up just 6.1%, compared to 8.9% for semi-detached properties and 8.8% for detached.

“This translates into cash increases for detached properties of nearly £41,000 compared to just £6,640 for flats.

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“Against a backdrop of rising pressures on the cost of living and impending increases in taxes, demand might be expected to soften in the months ahead, with some industry measures already indicating lower levels of buyer activity.

“Nevertheless, low borrowing costs and improving labour market prospects for those already in employment are likely to continue to provide support.

“Perhaps the biggest factor in determining the future of house prices remains the limited supply of available properties.

“With estate agents reporting a further reduction in the number of houses for sale, this is likely to underpin average prices – though not the recent rate of price growth – into next year.”

Mike Scott, chief analyst at Yopa, added: “The Halifax House Price Index for September shows that there was a large monthly increase in house prices as we reached the final end of the stamp duty holiday, with average prices up by 1.7% for the month and the annual rate of increase rising to 7.4%.

“The mortgage approvals included in the September figure largely relate to purchases that will complete in later months and not benefit from any tax saving, so this is in effect already a post-tax-holiday figure.

“It is therefore further evidence that the withdrawal of the tax savings will have little effect on the over-heated housing market, which is still being driven by a severe shortage of homes for sale, good mortgage availability at record low interest rates, strong wage growth, pandemic-induced lifestyle changes and the involuntary savings built up by many during the lockdowns.

“Yopa thus expects the current strong rate of price growth to be maintained into at least the first half of 2022 as we continue to recover from the pandemic and return to a new normal.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “Although reflecting some historical buying and selling, the housing market continues to demonstrate remarkable resilience bearing in mind the number of transactions brought forward in the last few months to take advantage of the stamp duty holiday.

“Nevertheless, we are finding activity has lost some oomph but there is still plenty of life left, supported by record low interest rates and supply, while though rising, is not doing so fast enough.

“The market also seems to be shrugging off rising inflation and the end of furlough, as well as widening economic concerns.”

August saw the average cost of a property reach £262,954, up 0.7% on July and the then highest figure on record.

By Jake Carter

Source: Mortgage Introducer

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Rightmove: Asking prices hit all time high

The national average price of property coming to market has hit an all-time high, rising by 0.3% (£1,091) this month, to £338,462, according to data collected by Rightmove.

This new record high is only £15 higher than the previous record set in July, which Rightmove said is a sign that prices are now stabilising.

Buyer demand has remained strong, but this is counterbalanced by increasingly stretched buyer affordability, disappearing stamp duty incentives and the summer holiday mini-lull, alongside sluggish price growth in London.

While five areas of Great Britain (South West, Wales, East Midlands, East of England and South East) have annual price growth in excess of 8%, Greater London has seen better supply of homes for sale than the rest of the country, contributing to a rise of just 0.8%.

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In the first two weeks of September, the number of new listings is up by 14% compared to the last two weeks of August.

In turn, more choice of properties encourages more current owners to come to market if they are looking for an onward purchase, and this greater liquidity is another factor in easing further upwards price pressure.

Tim Bannister, director of property data at Rightmove, said: “While the holiday-starved took their break over summer, the high ratio of buyer demand to properties for sale means that the property market remains stock starved despite the summer lull lessening overall activity.

“Competition among potential buyers to secure their next home is now more than double what it was this time in 2019. To be in pole-position in the race for the best property you need to have greater buying power than the rest of the field.

“That traditionally would mean deeper pockets to outbid other buyers, but in the most competitive market ever, today’s ‘power buyers’ also need to have already found a buyer for their own property, or to have no need to sell at all.

“Agents report that buyers who have yet to sell are being out-muscled by buyers who have already sold subject to contract. Proof that you are mortgage-ready or can splash the cash without needing a mortgage will also help you to get the pick of the housing crop.”

“This 14% increase in the number of new sellers coming to market in the first half of September is only an early snapshot, but autumn is traditionally a busy period, as those owners who have hesitated thus far during the year see the few months before Christmas as an opportunity to belatedly get their moving plans underway.

“The frenetic pace of this year’s market may also have put some potential movers off, but there are signs of a return of some normality.

“It’s still a strong sellers’ market in most of the country, so those looking to purchase need to do all in their power to maximise their appeal to sellers, who will often have several offers, and will usually choose the one that gives them the best chance of a quick sale.

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“Agents are reporting that the most successful buyers are using tactics such as ‘sell before you buy’ to increase their buying power in this competitive market.

“Estate agents know the best methods for movers to secure their ideal properties, so it’s well worth discussing your options with them.”

Cory Askew added: “Since the easing of lockdown restrictions, London has been reclaiming its position as a lifestyle destination that appeals to a wide range of buyer demographics.

“The market has been witnessing a continuous influx of buyers this month who are eager to find their new home without any further delay.

“This is most evident in prime central London where buyer demand has really roared back to life, having lagged behind other parts of London this year.

“With an array of attractive mortgage offerings available, we expect London’s property market to remain buoyant for the remainder of the year. In particular demand are properties with outdoor space or a room that can be utilised as a home office.”

Director of Benham and Reeves, Marc von Grundherr, said: “We’re heading into an extremely busy period where the property market is concerned and so the expiry of the stamp duty holiday and its impact on the market is going to be far less pronounced than first feared.

“With the stamp duty holiday causing manic market conditions and long delays to transaction times, many homesellers and buyers chose to retreat until the rush had subsided, having long given up hope of a stamp duty saving.

“However, we will now start to see them emerge from their boltholes and this additional stock will help rejuvenate the market throughout the remainder of the year.

“The London market, in particular, is poised for a strong finish with an abundance of stock now available and a sharp uplift in domestic and foreign demand being driven by pandemic restriction lifting both where the workplace and travel are concerned.”

Colby Short, founder and CEO of GetAgent.co.uk, said: “It’s fair to say that the process of selling first to improve your buying position has long been a tactic utilised by UK homebuyers and so we’re not seeing the ‘rise of the power buyer’ as such.

“That said, a high level of competition for a limited level of stock has highlighted the importance of a strong buying position when it comes to securing your ideal home.

“Unfortunately for the nation’s first-time buyers, those with an existing property to fund their onward purchase are in a far stronger position when it comes to placing an offer and this has pushed up the cost of buying quite considerably.

“As a result, those looking to buy their first home are now paying 12% more compared to just 12 months ago.

“However, the cost of borrowing remains very favourable and given current market delays, some sellers will place the stronger position of a first-time buyer above that of a few thousand pounds extra.”

By Jake Carter

Source: Mortgage Introducer

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House prices up 8% over year to July 2021 – ONS

UK average house prices have increased by 8.0% over the year to July 2021, down from 13.1% in June 2021, according to the Office for National Statistics (ONS) House Price Index.

The average UK house price was £256,000 in July 2021, which is £19,000 higher than the same time last year, following the record high of £265,000 in June 2021.

Average house prices increased over the year in England to £271,000 (7%), in Wales to £188,000 (11.6%), in Scotland to £177,000 (14.6%) and in Northern Ireland to £153,000 (9.0%).

London continued to be the region with the lowest annual growth (2.2%) for the eighth consecutive month.

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Sundeep Patel said: “July’s figures show house price growth was maintained, with prices rising by 8% meaning the average UK house price now sits at £256,000- £19,000 higher than this time last year.

“However, after months of highly inflated prices caused by unprecedented demand from hopeful buyers looking to snap up properties outside of major cities, and a race for space as we adapt to hybrid working, we are perhaps starting to see house prices stabilise slightly as the dust starts to settle following nearly 18 months of uncertainty.

“With consumer confidence increasing and an ongoing discrepancy between supply and demand when it comes to housing stock, we’re yet to see what the market could look like in a few months’ time.

“Also, with furlough ending this month, many will be anticipating the wave of support needed by those facing financial challenges.

“Whether the high street is adept enough to deal with these cases, or if this means more opportunity for specialist lenders to help is the next priority.”

John Eastgate added: “House price strength is set to continue despite the ending of the Stamp Duty holiday.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

“The dramatic shortage of supply looks set to persist and the economic backdrop will underpin valuations.

“The difference this time of course is that, if anything, London price rises are behind many other parts of the country, as buying habits change and buyers’ priorities shift towards quality of life rather than quality of commute. London prices will come back strongly however as we see a return to normality

“Mortgage rates are more attractive than ever, however accelerating house prices will do nothing to ease affordability challenges and we should expect to see continued growth of the private rental sector, which plays an essential role in the housing landscape.”

Stuart Law said: “The stamp duty holiday was a huge motivator for buyers and fuelled one of the busiest periods of market activity we’ve seen for a decade.

“With higher tax rates starting to phase back in from July, it is no surprise that we’ve seen an impact with house price growth temporarily stalling somewhat as a result of that incentive disappearing.

“The real problem though, concerning those looking to get on the housing ladder or move up it, is the continued and acute lack of stock which defines the current housing market.

“This has substantially driven house prices up for many years, with most properties nowadays subject to competitive bidding situations, and it is continuing to hinder market activity and apply upward pressure on pricing.

“Moderate house price growth is good for homeowners on balance – a little like modest wider inflation – but unbalanced or excessive house price growth is likely to be unsustainable and restrict the ability of many prospective buyers looking to enter the market.

“Demand continues to outstrip supply and we are likely to see house prices continue to grow well over inflation over the coming months as more and more people seek to adapt their lifestyle to a reimagined post-pandemic world, striking a new balance between home and work. All of this suggests that we are set for further substantial house price growth this year and next.

“The only way to introduce balance into the supply and demand equation in a sustainable way is to dramatically increase our housebuilding output and draw on the expertise of small, local developers who can quickly leverage their local knowledge to provide new homes where they are most needed and we are hugely supportive of that, funding one in 12 of all new SME-built homes.”

By Jake Carter

Source: Mortgage Introducer

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Strong property price growth ‘to persist through 2021’

Residential property prices in the UK accelerated in August, with values now 13% higher than before the pandemic, according to the latest data from Nationwide.

The building society said that annual property price growth sped up, to 11%, with the average home costing £248,857, with signs that prices could rise further.

According to the figures provided by Nationwide, property prices recorded their second largest month-on-month rise in 15 years, up by 2.1%.

The Nationwide’s chief economist, Robert Gardner, said: “As we look towards the end of the year, the outlook is harder to foresee. Activity will almost inevitably soften for a period after the stamp duty holiday expires at the end of September.”

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House prices in the summer usually see a dip as people’s attention turns to summer activities, but August has defied all odds with.

Nicky Stevenson, managing director at Fine & Country, commented: “This latest spike is stunning given that most analysts expected prices to decelerate as the stamp duty holiday entered its final throes going into the autumn.

“Those forecasts have now all proved wrong, and after a bumper summer which featured record borrowing, growth in Britain’s housing market still shows no sign of dampening.

“While the stamp duty holiday savings on big homes is quickly vanishing, a greater proportion of market activity is now in the mass market sector, buoyed by the resurgence of buy-to-let investing and first-time buyers.

“It is these sectors that continue to power double digit growth across the country.

“Based on this latest data, the market may well be running red-hot for some time to come, fuelled by low cost of borrowing, shrinking housing supply and government incentive schemes for first time buyers.

“The boom goes on.”

The widening supply-demand imbalance has also been a major factor in the housing market.

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Sam Mitchell, CEO of online estate agent Strike, said: “Let’s not forget that although the stamp duty holiday has ended, there is still a huge supply and demand imbalance issue in the UK, and the incentives that are still available – like the stamp duty savings still to be had for houses under £250,000 – are driving this imbalance further.

“The other incentives on offer will no doubt contribute to this too, with increased availability of 95% mortgages and low interest rates just some of the things that buyers can take advantage of. And who knows, the government might also have something planned to keep the market moving, but only time will tell!”

Lawrence Bowles, director of residential research at Savills, concurred: “There’s more to the housing market than stamp duty. Nationwide’s latest figures show robust house price growth in August, even with a less generous, tapered stamp duty holiday.

“Housing demand is still strong and the supply coming to the market is limited. There were 19% fewer homes listed for sale in the first half of August compared to the average for 2017-19, according to our analysis of TwentyCi data. There were 8% more sales agreed over that same period.

“As a result, we expect strong price growth to persist through 2021, though annual growth figures will ease back as we start counting growth from a higher, post-lockdown base. We expect annual house price growth to settle around 9% by the year end, with no reason to anticipate a correction in the coming years, particularly given the widely held view that interest rates will continue to remain low for the foreseeable future.”

Marc von Grundherr, added: “We’re seeing no let up in the extreme levels of house price growth seen in recent months. These hot market conditions are likely to remain beyond the summer months and well into autumn as we enter what is traditionally one of the busiest times of the year for the UK market.

“Of course, a slight dip can be expected come the end of the year. But those running for the hills at the first sight of a marginal monthly decline will do well to remember that even the best performing markets are subject to seasonal influences.”

By MARC DA SILVA

Source: Property Industry Eye

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Welsh house prices reach new peak in Q2

Welsh house prices rose to a new average peak price of £215,810 in Q2 2021, with the strongest rate of growth reported over the past year, according to Principality Building Society’s Wales House Price Index for Q2 2021.

Despite annual house price inflation of 12.5%, there was some sign that the strong pace of increases seen around the turn of the year have begun to abate, with the quarterly rate of increase now down to 1.4%.

This is likely to be a result of the Land Transaction Tax (LTT) holiday coming to an end in June, and could indicate price growth slowing in the second half of 2021.

Principality’s House Price Index estimates that there were around 13,400 transactions in Q2 2021, nearly treble the COVID-depressed level of the same time the previous year (4,800 sales), but also significantly higher than the more ‘normal’ period of Q2 2019 (11,000 sales).

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All 22 local authorities reported rises on an annual basis in Q2, repeating the performance of the previous quarter.

Prices in eight authorities reached new peaks in Q2 – Blaenau Gwent (£128,441), Bridgend (£214,081), Conwy (£222,944), Merthyr Tydfil (£159,101), Neath Port Talbot (£160,324), Rhondda Cynon Taf (£150,726), Vale of Glamorgan (£330,396) and Torfaen (£198,476).

Nine local authorities reported annual price increases of more than 15%, with Blaenau Gwent (19.6%), Bridgend (19.4%), Carmarthenshire (19.9%) and Conwy (19.7%) all reporting an annual rise of almost 20%.

Many of these local authorities also reported strong quarterly gains, in particular Bridgend (11%) and Merthyr Tydfil (15%).

A small majority of local authorities (12 of the 22) reported minor quarterly decreases, which may be a further sign that a gentler period of price inflation lies ahead.

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Three major Welsh cities – Newport, Swansea and Wrexham – along with Powys, all reported quarterly prices around 5% lower.

Tom Denman, chief financial officer at Principality Building Society, said: “The scale and strength of the housing market in Wales to date does suggest that this momentum will continue into the final quarters of the year.

“Clearly, the stimulus effect of the Land Transaction Tax holiday will have disappeared by then, and because some purchases were brought forward to capture that benefit, there will be an inevitable dip in activity.

“Alongside this, the furlough scheme ends in September, thus further revealing the underlying state of the economy and employment.

“Various forecasts suggest that Wales -along with other parts of the UK- will see house price inflation down to just under 5% in 2022 and onwards.

“Much will depend on the course of interest rates and the economy, but the mortgage market remains very competitive with rates having fallen in recent months after slightly increasing at the height of the pandemic.”

By Jake Carter

Source: Mortgage Introducer

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UK property price surge being driven by working from home

UK property price surge being driven by working from home, says Bank of England

Home buyers willing to pay more for greater space as a result of working from home is helping to drive house prices up in the UK, says the Bank of England.

Ben Broadbent, Deputy Governor, said the most recent jump in house prices reflects consumer demand for larger homes. This is because more people are anticipating needing office space in their home.

Governor Andrew Bailey also added that the rapid increase in the availability of high loan-to-value mortgages is also aiding home buyers to spend more on their new homes.

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“People have worked more at home and expect to work more from home,” said Broadbent in a Bank of England online event. “Space at home becomes more valuable, and in particular, space at home outside city centers becomes more valuable.”

Broadbent added that the Bank has observed similar trends in other countries as a result of staff being forced to work remotely for almost two years due to lockdowns.

Despite this, the housing market has lost some of its momentum in recent weeks as mortgage lender Halifax reported that house prices only increased by 7.6% year-on-year in July, compared with 8.7% the month before.

Managing director of Halifax, Russell Galley, said: “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.”

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Senior economic adviser to the EY item club, Martin Beck, said that Halifax’s report shows signs that higher property prices will persist past the end of the stamp duty holiday, which is due at the end of September.

“Overall, the odds of a significant correction in house prices anytime soon looks small,” Beck said.

KPMG’s head of UK building and construction, Jan Crosby, said: “We are seeing much higher demand than supply, with owners nervous about putting their properties up for sale in case they can’t find the right home to buy, leading to low stock for estate agents.

“This vicious cycle is going to be hard to overcome,” Crosby added.

By Harry Pererra

Source: Money Expert

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UK house prices fell slightly in July, says Nationwide

House prices in the UK experienced a 0.5% fall in the month to July, following the record highs seen in June.

The Nationwide House Price Index for July shows annual growth was still significant at 10.5%, but down from the 17-year high of 13.4% a month earlier.

The average UK house price now stands at £244,229, compared to £245,432 in June.

Nationwide chief economist Robert Gardner says the modest fallback in July was “unsurprising given the significant gains recorded in recent months”, adding that house prices increased by an average of 1.6% a month over the April to June period – more than six times the average monthly gain recorded in the five years before the pandemic.

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Gardner says higher priced properties have been driving the increase in housing market activity, with Land Registry data indicating that the number of transactions involving properties bought for £500,000 or higher increased by 37% over the 12 months to March 2021, compared to a rise of 2% for all properties.

“As a result, between Q1 2020 and Q1 2021 the share of transactions involving a property valued at £500,000 or above has increased from 12% to 18%,” says Gardner.

While stamp duty was a significant contributor to UK house prices, the Nationwide data finds the main driver of transactions was from those who would have moved regardless of whether the tax holiday had been in place.

“Amongst homeowners surveyed at the end of April that were either moving home or considering a move, three quarters said this would have been the case even if the stamp duty holiday had not been extended beyond the original March 2021 deadline,” says Gardner.

“Shifting housing preferences appear to have been the more important factor in driving the increase in housing market activity, with people reassessing their housing needs in the wake of the pandemic.”

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Together director of sales Sundeep Patel says: “Despite house price growth slightly cooling off, we’re still seeing double digits. Indeed, while the stamp duty holiday and cheap mortgage deals boosted prices, the growing shortage of available stock, and the fact that property continues to be sold for more than the asking price, threatens the opportunity for those not already on the ladder to find something affordable this year. There is a concern that first-time buyers may struggle to even get a look in, as deposit-rich buyers such as landlords and home movers snap up properties.

“There’s an increasingly a race for space as well, as we see potential buyers are also showing more of an interest in houses over flats and apartments – largely triggered by the desire to have more living space and a garden as we settle into hybrid working, and come to realise the fact that many of us will be spending significantly more time at home for the foreseeable”.

By Bek Commane

Source: Mortgage Finance Gazette

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House prices set to continue rising as supply shrinks

Residential house prices will increase by 9% this year as the market is driven by the extended stamp duty holiday and the impact of repeated lockdowns, Savills has predicted.

The estate agent has upgraded its expectations from the 4% annual price growth it predicted in March, prior to the chancellor’s stamp duty holiday extension.

Savills still expect property values to rise by 21.5% over the next five years, in line with previous forecasts, as price inflation eases following the removal of incentives.

Price growth continues to be fuelled by historic low mortgage rates, along with greater demand from buyers for properties with more space and greenery following months of lockdowns.

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However, the company says that the shape of growth over the next four years is more difficult to forecast precisely given the extraordinary conditions of the past 18 months.

“Some of the growth generated by the extraordinary market conditions of 2020 and 2021 could unwind at times during 2022, but we see nothing on the horizon that would trigger a major house price correction,” said Lucian Cook, Savills head of residential research.

Savills mainstream house price forecasts and economic assumptions:

202120222023202420255yr Total
UK9.0%3.5%3.0%2.5%2.0%21.5%
London7.0%2.0%1.5%1.0%0.5%12.4%
Base rate0.1%0.1%0.1%0.3%0.5%
Unemployment (UK)6.0%4.6%4.0%3.7%3.6%
Annual Income Growth (UK)0.8%0.0%4.1%3.9%3.8%17.2%
Source: Savills, Oxford Economics

Cook continued “New buyer demand continues to outweigh supply despite the potential stamp duty saving falling from £15,000 at June 30 to just £2,500 until the end of September, and this against low levels of supply.

“This imbalance looks set to continue,  underpinning further price growth over the near term, particularly as people look to lock into current low interest rates.  But such strong growth in 2021 will leave less capacity for growth over the next few years, particularly as interest rates are expected to rise a little earlier than leading commentators had previously projected.

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“The rate at which interest rates rise will also shape price growth. A steeper than anticipated jump in rates would restrict growth, although it would have to be severe to lead to actual falls in values – an outside risk in our view.”

Interest rate rises are critical to the forecasts, Savills says. The forecasts assume a Bank of England base rate no higher than 0.5% by the end of 2025.

A number of other key factors point to what Cook describes as a ‘soft landing’ for the market, rather than any dramatic correction in property values. 

Since the market reopened last year, price growth has been driven in large part by more affluent buyers, less reliant on mortgage debt and able to lock into low fixed interest rates. More generally, the pace of economic recovery has helped reduce unemployment levels, stress testing of lending is now embedded in the system, while interest rate rises are still expected to be slow and modest by the end of 2025, meaning a gradual squeeze on affordability.

These factors underpin Savills five-year forecasts, but they also indicate limited capacity for further price growth at the end of this period, without substantially affecting who is able to buy and the number of potential transactions. 

First-time buyers are likely to be increasingly reliant on government schemes and, where available, on the generosity of the bank of mum and dad, according to Savills. 

After a strong start to the year, and over 200,000 transactions in June alone, transaction volumes are projected to total 1.62m this, more than a third – 35% – higher than the yearly average over the five years pre-pandemic.

Savills continues to expect the markets of the Midlands and the North of England to show the strongest house price growth, due to greater capacity for growth before hitting affordability ceilings.  In the short term, however, buyer attention is expected to turn back towards urban markets, including London, as social distancing restrictions and international travel restrictions ease.

This will see the ratio of regional to UK average values slowly converge over the next five years, as the lower value regions see stronger growth, “catching up” with the rest of the country.

 202120222023202420255 years to 2025Av value* Dec 2020Forecast value end 2025
UK9.00%3.50%3.00%2.50%2.00%21.50%£230,920£280,568
North West10.50%4.50%4.00%3.50%3.00%28.00%£176,925£226,464
Yorkshire & The Humber10.50%4.50%4.00%3.50%3.00%28.00%£172,326£220,577
Wales10.00%4.00%4.00%3.50%3.00%26.80%£169,846£215,365
Scotland9.50%4.00%3.50%3.00%2.50%24.40%£156,768£195,019
North East8.00%4.00%3.50%3.50%3.00%23.90%£137,531£170,401
East Midlands9.00%4.00%3.50%3.00%2.50%23.90%£200,951£248,978
West Midlands9.00%4.00%3.50%3.00%2.50%23.90%£207,603£257,220
South West8.50%3.50%3.00%2.50%2.00%20.90%£264,512£319,795
South East9.00%3.00%2.50%2.00%1.50%19.10%£336,984£401,348
East of England8.00%3.00%2.50%2.00%1.50%18.00%£310,240£366,083
London*7.00%2.00%1.50%1.00%0.50%12.40%£486,562£546,896
Source: Savills (*Nationwide)

By MARC DA SILVA

Source: Property Industry Eye

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