Nationwide: August upturn witnessed as UK house price growth increases to 11%
Annual house price growth rose to 11.0% from 10.5% in July, according to the latest Nationwide House Price Index.
According to the index, prices increased by 2.1% month-on-month, signalling the second-largest gain in 15 years.
Throughout the month, average house prices nudged towards the £250,000 mark.
Robert Gardner, Nationwide’s chief economist, said that the bounce back in August is surprising because it seemed more likely that the tapering of stamp duty relief in England at the end of June would take some of the heat out of the market.
He stated that the monthly price increase was substantial – at 2.1%, it was the second-largest monthly gain in 15 years (after the 2.3% monthly rise recorded in April this year).
Mr Gardner said: “The strength may reflect strong demand from those buying a property priced between £125,000 and £250,000 who are looking to take advantage of the stamp duty relief in place until the end of September, though the maximum savings are substantially lower (£2,500 compared to a maximum saving of £15,000 on a property valued at £500,000 before the stamp duty relief in England tapered).
“Lack of supply is also likely to be a key factor behind August’s price increase, with estate agents reporting low numbers of properties on their books.”
However, Mr Gardner urged that the outlook is still clouded, he said: “Underlying demand is likely to remain solid in the near term. Consumer confidence has rebounded in recent months while borrowing costs remain low. This, combined with the lack of supply on the market, suggests continued support for house prices.
“But, 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, given the incentive for people to bring forward their purchases to avoid the additional tax.”
He concluded: “Moreover, underlying demand is likely to soften around the turn of the year if unemployment rises, as most analysts expect, when government support schemes wind down. But even this is far from assured. The labour market has remained remarkably resilient to date and, even if it does weaken, there is scope for shifts in housing preferences as a result of the pandemic to continue to support activity for some time yet.”
Martin Beck, senior economic advisor to the economic forecaster EY ITEM Club, commented: “The latest numbers from Nationwide showed house prices growing by 2.1% month-on-month in August. This was the second-largest gain in 15 years and up from 0.6% month-on-month in July. August’s increase left the annual increase in prices at 11%, compared to July’s 10.5%.
“Although the temporary stamp duty saving introduced last year was decreased on 30 June, the nil-rate threshold will not return to the original £125,000 level until 1 October. So buyers lining up transactions and seeking to benefit from a lower tax bill before the October deadline may have supported demand and prices in August.
“Other factors also played a role in August’s rise in prices, and these are likely to persist for the foreseeable future. Consumer confidence has remained high and buyers have continued to benefit from ultra-low mortgage rates. Meanwhile, the pandemic has had what will likely be long-lasting effects on property preferences, including raising demand for larger homes in a world of more home working. Combined with the fuel for property deposits provided by the substantial savings accumulated by some households during lockdowns, there are plenty of props supporting the housing market.”
He added: “That said, forces affecting the housing market are not all positive. On measures such as the ratio of house prices to household incomes, affordability looks increasingly stretched. And, despite a recovering economy, higher inflation and the prospect of some increase in unemployment when the furlough scheme ends means the outlook for household income growth is clouded. But the odds of a significant downturn in house prices anytime soon looks small.”