UK house prices hit record high after easing of Covid lockdown

UK house prices surged at the fastest pace in 16 years in August as strong demand pushed the cost of an average home to a record high, defying the economic crisis caused by the coronavirus pandemic.

The average house price soared to £224,123 in August, the highest on record, according to data from Nationwide building society. Prices rose by 2% during the month, the fastest rate of increase since February 2004.

HSBC plans to curb sales of low-deposit mortgages

Over the past 12 months prices have jumped by 3.7% despite the UK suffering the deepest recession since records began after unprecedented restrictions on movement. That same 12-month period also included prolonged uncertainty over when and how the UK would leave the EU, as well as a general election.

However, a number of factors have come together to prevent major house price falls since the market was allowed to restart in May, including pent-up demand and the chancellor Rishi Sunak’s stamp duty holiday, which means buyers in England and Northern Ireland do not pay the tax on purchases worth less than £500,000 until 1 April 2021. Different rates and thresholds apply in Scotland and Wales.

Barratt Developments, one of the UK’s largest housebuilders, reported that profits before tax in the year to 30 June were down by 46% to £492m. However, David Thomas, Barratt’s chief executive, expressed “cautious optimism” about the year ahead, in large part because of “very strong consumer demand”.

Robert Gardner, Nationwide’s chief economist, said there had been an “unexpectedly rapid recovery in housing market activity since the easing of lockdown restrictions”.

Gardner also added that there were signs that “behavioural shifts” could also have boosted activity, as prospective buyers increasingly looked for properties with more space for working from home. A Nationwide survey in May found that about 15% of people said they were considering moving as a result of life in lockdown.

However, the surge in the housing market has raised concerns over what will follow. The temporary stamp duty holiday is expected to pull forward some purchases, meaning there could be a lull once it ends.

At the same time, all of the recent economic forecasts collated by the Treasury suggest unemployment will rise sharply in the last three months of the year, with particular concerns over a wave of job losses once the government’s job retention scheme, which supports the wages of furloughed workers, ends in October.

Tobi Mancuso, a director of the property investment company Track Capital, said: “The danger is that this frenzy could create a bubble in house prices that will be quickly deflated when stamp duty returns, so buyers should be wary of prices that feel overinflated.”

Nationwide’s Gardner said: “Most forecasters expect labour market conditions to weaken significantly in the quarters ahead as a result of the after-effects of the pandemic and as government support schemes wind down. If this comes to pass, it would likely dampen housing activity once again in the quarters ahead.”

Source: Read Full Article