House prices have hit a fresh record high, according to Nationwide’s long-running index as the property market seemingly defies economic gravity.
But a growing number of experts in the property industry fear the ‘mini boom’ in house prices will not last into the latter stages of next year as unemployment and the recession eats into the sector.
Lender Nationwide today published a slew of upbeat data in its latest house price index, suggesting the average property price has reached an all-time high of £224,123 – that is £8,000 higher than in February just before lockdown.
Property prices rose at the fastest pace since February 2004 last month, but the update came as HSBC became the latest bank to cull 10 per cent deposit mortgages in a move that will leave many first-time buyers struggling to find a loan.
Costly: The average cost of a home in Britain has risen to £224,123, Nationwide said today
HSBC today said that it will temporarily suspend deals for new borrowers with a 10 per cent deposit due to a ‘significant consequence on service levels’ following a significant uptick in new borrower enquiries.
While no one has a crystal ball that can truly predict what will happen to the market, a growing number of insiders think the current spike in activity and prices looks set to fall once Chancellor Rishi Sunak’s stamp duty threshold shifts come to an end and more job cuts emerge.
The EY Item Club thinks house prices will be 3 per cent lower by the end of the year than they are now.
Such uncertainty in the market means both buyers and sellers have been left in a quandary.
Buyers are wondering if they should wait and try and get a better deal next year, while sellers might be wondering if the market has really reached its peak for the foreseeable future.
What’s happened to house prices?
Lender Nationwide published some fairly striking numbers today, suggesting that house prices across the country increased at the fastest pace since 2004 last month.
Reaching an all-time high, the average cost of a home in Britain is now £224,123, which is over £3,000 more than it was in July, Nationwide said.
Annually, prices are 3.7 per cent higher than they were at the same point a year ago and 2 per cent more than they were a month ago.
Shifts: A chart showing the annual percentage changes in house prices since August 2017
Separately, data-crunchers at the Office for National Statistics and the Land Registry also published official house price figures for May today.
While these numbers from the ONS and Land Registry are out-of-date, they reveal that average property prices increased by 2.9 per cent to £236,000 in the year to May, up from a 2.7 per cent rise in April.
Based on completed housing transaction figures, average house prices increased over the year in England to £252,000 (2.9 per cent), Wales to £169,000 (4.8 per cent), Scotland to £155,000 (2.1 per cent) and Northern Ireland to £141,000 (3.8 per cent), the ONS said.
Earlier this month, Halifax reported that property prices had increased by 3.8 per cent annually in July, which the lender said was the highest it had ever been since the index began.
Russell Galley, managing director at Halifax, said: ‘The latest data adds to the emerging view that the market is experiencing a surprising spike post lockdown.
‘As pent-up demand from the period of lockdown is released into a largely open housing market, a low supply of available homes is helping to exert upwards pressure on house prices.’
Well-known online property websites, including Rightmove and Zoopla have also reported a spike in activity on their sites in the last few months, but, of course, not every browser will turn into a buyer and secure a sale for an estate agent.
Yesterday, the Bank of England reported that mortgage approvals for house purchases jumped sharply for a second month running in July, reaching a five-month high of 66,281.
What has triggered the rise in property prices?
Nationwide thinks the spike in demand among buyers and rise in house prices has been driven by more than just pent-up demand after the easing of lockdown restrictions.
Robert Gardner, chief economist at Natiownide, said: ‘The bounce back in prices reflects the unexpectedly rapid recovery in housing market activity since the easing of lockdown restrictions.
‘This rebound reflects a number of factors. Pent up demand is coming through, where decisions taken to move before lockdown are progressing.
‘Behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown.’
Demand is also often outstripping supply in many of the most sought after property locations up and down the country, which is pushing prices higher in these areas.
What sort of homes are people snapping up?
Since lockdown began in March, people’s priorities on the home-buying front have been ‘exaggerated’, Sam Mitchell, chief executive of online estate agent Strike said.
In a recent survey of over 2,000 prospective buyers by Strike, most said they wanted to move home to get more space, better home working options and, ideally, a garden.
Mr Mitchell told This is Money: ‘People move for all sorts of reasons, but our research revealed wanting a bigger home is currently the top priority and clearly driving demand.
Moving up: Average house price data from Nationwide suggests prices are on the up
‘We’ve changed the way in which we work, with remote working leading to an increased need for home office space, and the benefits of having a garden has also been proven in recent months.
‘Not getting on with your neighbours can be another factor at play, particularly at the moment when we’re still spending more time at home.’
Speaking to This is Money, Lucy Pendleton, a property expert at James Pendleton estate agents, said sales of flats on the market for £1million or more with no garden were proving tougher to sell at present, adding that such properties needed to be priced ‘realistically.’
Ms Pendleton, however, also said that her company was seeing sales of first time buyer flats remaining strong, buoyed by low mortgage rates. But, it is important to stress that many lenders have tightened their lending criteria when it comes to first time buyers, and some have scrapped the best deals as a result of the pandemic.
Other experts said sales of second and holiday homes have been rising since lockdown, even though the additional stamp duty surcharge on such sales still applies.
‘Prices are rising fastest among coastal and country properties as buyers planning for a new work-life balance built around less commuting seek more green space, fresh air and better value’, Jonathan Hopper, chief executive of Garrington Property Finders, said.
Will the mini-boom in house prices last?
This will be the question on everyone’s lips at the moment, whether you are a prospective buyer, an estate agent or someone thinking about selling their home in the not too distant future.
The sense of optimism is palpable from experts like Lucy Pendleton, of independent estate agents James Pendleton, who said: ‘Buyers emboldened by the stamp duty holiday have been engaged in a pitch battle for property, delivering a barnstorming recovery for the market.
Affordable? House price to earning ratio chart for the UK since 1990, according to Nationwide
‘A stunning proportion of properties are now going for asking price or more, and offers are flooding in. It’s like lockdown was a bad dream.’
She added: ‘The late summer surge is particularly apparent in London where the greatest proportion of buyers will benefit from the maximum discount of £15,000.’
Ms Pendleton thinks the bullish run in house prices ‘still has a long way to run’, so long as the UK achieves a ‘softer landing’ on the job losses front after furloughing comes to an end.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said he cannot see the market slowing down any time soon. He said: ‘On the contrary, the recovery seems to be fairly broad-based and will be given another lift by schools and more businesses re-opening.’
Time to be cautious?
But, a growing body of property experts are urging prospective buyers and sellers to be cautious, suggesting that the current surge in prices may not last.
For a buyer who rushes in, a drop in prices could mean ending up in negative equity, while for a seller, uncertainty makes it difficult to decide when to sell in the hope of getting the best price.
The Government’s Job Retention Scheme, which has been covering around 10million workers, has started to wind down this month, with the state now only shouldering 70 per cent of wages. This will be scaled down further to 60 per cent in October, before the furlough scheme ends.
It is feared that more mass job cuts could ensue once furloughing comes to an end, with over 700,000 already reported to have lost their jobs. This, combined with the rising cost of living, could take its toll on the property sector in the coming months.
Labour’s shadow chancellor Anneliese Dobbs has criticised the UK Government’s ‘very, very short-sighted’ plan to end the job retention scheme in October, which she warned will lead to even higher unemployment.
Guy Harrington, chief executive of Glenhawk, said: ‘The speed of the market’s recovery is almost jaw dropping, with the recent stamp duty holiday and whimsical consumer behaviour seemingly turbo charging a market that looks increasingly disconnected from economic reality.
‘The government money train cannot go on forever however. The end of furlough, which will be the trigger for winter of pain for millions, is imminent, and that’s before we even factor in a second spike.
‘The market looks dangerously close to bubble territory; it’s a matter of when, not if, it bursts.’
Meanwhile, Andrew Montlake, managing director at mortgage broker Coreco, said a ‘reality check’ is needed when it comes to looking at Nationwide’s latest house price figures.
Mr Montlake said: ‘As strong as the property market is right now, it will not last.
‘Demand is understandably strong after lockdown and the added bonus of the stamp duty holiday, but unemployment is rising by the day and the economic outlook is highly uncertain as the furlough scheme ends.
‘In the final months of the year we will start to see a reversal in the current rate of house price growth, as the true impact of Covid-19 on the economy shows through.’
How will the end of the stamp duty holiday affect house prices?
Until 31 March next year, around 90 per cent of buyers will not have to pay any stamp duty at all due to Sunak’s temporary threshold shifts.
For the moment, no stamp duty has to be paid on homes up to £500,000.
‘There is a danger that this may create an artificially inflated house price bubble with the question remaining if and when it could burst’, Tobi Mancuso, a director at Track Capital said.
The EY Item Club also remains cautious about Nationwide’s house price data today and suggests that the stamp duty holiday will only provide ‘temporary support’ to the sector.
Howard Archer, chief economist at the EY Item Club, said he thinks property prices could end up being 3 per cent lower than they are now within the first few months of next year.
Mr Archer said: ‘The EY Item Club suspects the current pick-up in activity and firming of prices will prove unsustainable due to challenging fundamentals for consumers.
‘Many people have already lost their jobs, despite the supportive Government measures, while others will be concerned that they may still end up losing their job once the furlough scheme ends. Additionally, many incomes have been affected.’
He added: ‘The EY Item Club suspects that the housing market is likely to come under pressure over the final months of 2020 when there is likely to be a significant rise in unemployment as the furlough scheme draws to a close in October.
‘This will not only adversely affect the fundamentals for house buyers, but also likely fuel caution on committing to buying a house.
‘There is also likely to be a fading of the pent-up demand effect on activity.
‘Consequently, the EY Item Club predicts that the housing market will come under downward pressure late on in 2020.’
But, looking further ahead, Mr Archer added: ‘The EY Item Club does expect housing market activity to gradually improve from early-2021 as the labour market stabilises then starts to improve and the UK’s economic recovery continues.
‘Very low borrowing costs should also help with the Bank of England unlikely to lift interest rates from 0.10% during 2021.
‘Even so, the EY Item Club expects house price gains to be no more than 2-3% in 2021.’
Thinking of buying or selling a home?
In the current climate, it is difficult to know how best to proceed on the property front.
Speaking to This is Money, buyer agent Henry Pryor told This is Money: ‘I am expecting our appetite for property to dwindle as fast as the summer heatwave.
‘Mortgages may not get more expensive but they are already getting tougher to qualify for. The bank of Mum and Dad isn’t able to help everyone and as the supply levels pick up there is genuine concern about if there will be enough buyers ready to meet what is coming onto the market.
‘My advice remains the same – if you want to sell, get on and try to find a buyer. If you’re thinking of buying then I wouldn’t be in any rush.’