The UK property market has been enjoying a mini boom recently with the recent extension of the stamp duty holiday and introduction of 5% deposits for mortgages, the result of which could see house prices rising in the coming months.
House prices have fluctuated with continuing lockdown measures and the ongoing stamp duty holiday. The stamp duty holiday has been extended until the end of June 2021, with a proposed staggered return back to the usual rates thereafter as the nil rate band threshold after June is to be set at £250,000 until the end of September 2021 before returning to its usual level at £125,000 for home movers from October 2021.
The impact these changes have made to the property market can be assessed by various means:
Land Registry UK House Price Index
The most reliable barometer of house prices is the Land Registry’s UK House Price Index which is based on sold properties in the UK. Although, this works on a two-month lag and therefore the latest figures show those of December 2020.
The Land Registry says the price of a property in the UK increased by 1.2% month-on-month which can perhaps be interpreted as a steady increase and with an 8.5% increase year-on-year.
The Rightmove index is more up to date however, it is based on asking prices rather than sold prices. In the March 2021 report, it found average asking prices had risen by 0.8% month-on-month and 2.7% year-on-year.
The Nationwide index is based on mortgage lending which reported a 0.7% monthly and 6.9% annual rise in prices in February 2021 with the average price of a home at £231,058, the highest on record.
The Halifax index, also based on mortgage lending, reported a 0.1% monthly fall and 5.2% annual increase in house prices.
Each index is based on a different stage of the buying process which accounts for the differing index rates measured as recorded above. Indices based on asking prices, such as Rightmove, reflect sellers’ sentiment in almost real time but, do not show us what buyers are willing to pay. This means that the February indices based on asking prices reflect the perception of the market at a time near the planned end of the stamp duty holiday, a measure which as we know has now been extended to the end of June. In contrast, sale-based indices, such as the official data recorded by the Land Registry are based on prices agreed although is not in real time and as it holds a two month lag in producing data.
Indices tracking house prices on mortgage offers, such as Nationwide and Halifax, capture the prices settled in the middle of the house purchase process however, they are less comprehensive as they omit cash transactions and buy-to-let purchases as well as only covering their customers which may not be representative of the whole population.
Whilst the low-deposit introduction of 5% loan for mortgages on properties worth up to £600,000 may allow people to get on the property ladder, those who do not have a regular income may still find it hard to get a mortgage and there is the risk of getting into negative equity if house prices fall.
The reopening of the economy together with the latest announcements in the 2021 Budget such as the extension of the stamp duty holiday and introduction of 5% mortgages are expected to provide further changes in the property market. Although these changes are expected to support prices, the impact when these measures draw to a close over the coming months will be an interesting watch for both buyers and sellers as changes in demand will be looming …