House prices in the UK increased in September, continuing a surge that has taken many experts by surprise as the country grapples with the economic fallout of coronavirus.
Nationwide, the building society, said on Wednesday that average prices increased 0.9 per cent between August and September, putting them 5 per cent higher than at the same time last year.
“The rebound reflects a number of factors. Pent-up demand is coming through, with decisions taken to move before lockdown now progressing. The stamp duty holiday is adding to momentum by bringing purchases forward. Behavioural shifts may also be boosting activity as people reassess their housing needs and preferences as a result of life in lockdown,” said Robert Gardner, Nationwide’s chief economist.
Prices have risen in line with demand, which was released when lockdown restrictions eased in May. Mortgage approvals for home purchases hit 84,700 in August, the highest level since 2007 and well above the 66,300 approved in July, according to Bank of England data published on Tuesday.
But the headline price growth obscures an increasingly divided market. “These averages are useful for macroeconomic analysis but for your average homeowner, it’s what’s happening locally that matters,” said Richard Donnell, head of research at property portal Zoopla.
“There’s thousands of housing markets out there, each with their own distinct trend, and there’s parts of the country where the market remains weak.”
An analysis by Zoopla published this week found that first-time buyers were being squeezed out of the market, as access to the high loan-to-value mortgages on which many rely is restricted.
Nationwide’s analysis found younger people were far more likely than older buyers to be putting off plans to move, with concerns around job security and future price falls causing many to hesitate.
Existing property owners, meanwhile, account for a growing proportion of the market, with shifting lifestyle preferences one reason for moves. More than a third of buyers surveyed by Nationwide said they were looking to relocate, and 30 per cent said they were seeking homes with more outdoor space.
There are fears that the market rally may be short-lived. The end of the government’s furlough scheme next month is likely to result in a spike in unemployment. It’s replacement, the job support scheme, is a less generous measure that chancellor Rishi Sunak has warned will not protect all jobs.
With coronavirus rates rising rapidly, Prime Minister Boris Johnson has also introduced new local lockdowns and warned that restrictions could last a further six months, raising questions for the economy.
Moreover the stamp duty holiday, introduced in July, is due to end in March next year. The measure, which lifts the threshold at which the purchase tax kicks in from £125,000 to £500,000 in England and Northern Ireland, saves buyers up to £15,000 and is one of the reasons behind the current spike in prices and transactions.
Despite the dangers ahead, some experts believe the market will be stronger than expected next year.
Savills, the estate agency, revised its price forecasts upwards on Tuesday. Having anticipated a 5-10 per cent fall in prices in the months following the UK’s lockdown in March, the company now predicts prices will rise 4 per cent this year and plateau in 2021 — albeit on the assumptions that there is no second shutdown of the housing market and that a vaccine becomes available next year.
“The pace of change in the UK housing market has taken us all by surprise over the past few months, suggesting normal rules simply don’t apply,” said Lucian Cook, head of residential research at Savills.