Recent figures from Nationwide show residential house prices are still on the rise, despite the winding down of the Stamp Duty holiday. But are the figures as encouraging as they look? Or will the slowed ending of the Stamp Duty holiday lead to a fall in the housing market activity?
We take a look at what the data suggests about the present and what it seems to predict for the future…
What does the data show?
Nationwide’s house price index shows residential property prices in the UK are increasing at the fastest rate for 17 years, with every region picking up.
Annual house price growth rose 13.4%, or £29,000, to reach an average of £245,432, the highest level since November 2004. Prices were also up 0.7% month-on-month, once seasonal factors have been taken into account.
Although the figures sound encouraging, June only seeing a 0.7% in growth, was slower than the 1.7% growth seen in May. Is this due to the impending end of the Stamp Duty holiday?
The Stamp Duty holiday was introduced on 8th July 2020 and began its winding down last week, where the nil-tax band went from £500,000 to £250,000. The nil-tax band will stay at this level until 30th September, where it will return to its ‘pre-holiday’ level of £125,000.
It has been suggested the Stamp Duty holiday may have created a ‘false economy’ with the annual rise in average prices almost double the maximum saving of £15,000, showing the growth isn’t sustainable.
What has been said?
Nationwide provided a warning over the affordability of houses for first-time buyers, with house prices now close to a record high relative to average incomes.
Robert Gardner, the Nationwide chief economist, said: “While the strength is partly due to base effects, with June last year unusually weak due to the first lockdown, the market continues to show significant momentum. Indeed, June saw the third consecutive month-on-month rise, after taking account of seasonal effects. Prices in June were almost 5% higher than in March.”
Predictions for the future
It’s hard to know what impact the end of the Stamp Duty holiday will have on the housing market, and whether or not it will lead to a drop in activity causing a fall in house prices.
As it stands, the figures look encouraging to say that housing market activity will remain at a good level, with growth still continuing despite the winding down of the Stamp Duty holiday, but there is worry around whether these figures look disproportionately good.
We say this because the housing market activity in June 2020 was uncharacteristically bad, with the country still in the first lockdown, which makes the figures from this June (2021) look very good, despite this maybe not being the reality.
It is expected that with the winding down of the Stamp Duty holiday will come less market activity, as buying a house now becomes more expensive again. A drop in activity could lead to a drastic fall in house prices, which in turn could have a detrimental effect on the economy, with the housing market being one of the only areas keeping the economy afloat.
Having said this, what if a drop in the housing market activity is a good thing? Maybe a fall in activity will lead to a drop in house prices, making it easier for first-time buyers to get a foot on the property ladder, which in turn will stimulate the housing market and the wider economy.