UK house price inflation hit its highest level since 2004, in the last rush to take advantage of the full stamp duty holiday.
Nationwide mortgage lender reports this morning that annual home price growth has hit 13,4% this month, the highest level since November 2004.
On a monthly basis, prices increased by 0,7% in June, bringing the average price to £ 245,432 on the Nationwide Index.
This is a slowdown from the 1.7% increase in May, but it still means annual price inflation is the highest in more than 16 years.
This partly reflects the weakness of the market a year ago, during the first wave of Covid-19. But it also reflects the rush to buy as the end of the stamp duty holiday approaches (the threshold is halved to £ 250,000 on July 1 in England and Northern Ireland, while in Wales , tax relief on purchases up to £ 250,000 ends).
Robert Gardner, Chief Economist of Nationwide, explains:
While the strength is in part due to base effects, with June of last year exceptionally weak due to the first foreclosure, the market continues to show significant momentum.
In fact, June saw the third consecutive monthly increase (0.7%) after taking into account the seasonal effects. Prices in June were almost 5% higher than in March.
More Gardner also warns that the outlook for the housing market is more difficult to assess once the stamp duty tax exemption ends
“Underlying demand is expected to remain strong in the near term as the economy unlocks. Consumer confidence has rebounded as borrowing costs remain low. This, combined with a lack of supply in the market, suggests further upward pressure on prices. But as we look towards the end of the year, the outlook is more difficult to predict.
“Business will almost inevitably ease for a period after the stamp duty holiday expires at the end of September, given the strong incentive people have to advance their purchases to avoid the additional tax.
Nonetheless, underlying demand is expected to weaken towards the end of the year if unemployment rises as most analysts expect, as government support programs end. But even that is far from certain. Even as the labor market weakens, it is also possible that changes in housing preferences following the pandemic will continue to support activity for some time to come.
The Nationwide report also shows that all parts of the UK have seen an acceleration in annual house price growth in the last quarter.
North Ireland and Wales saw the largest gains, at 14% and 13.4% respectively in the second quarter. On the other hand Scotland experienced the lowest annual growth rate at 7.1%, followed closely by London at 7.3%.
Gardner points out that the Scottish government ended its stamp duty holiday at the end of March, which means the market may have cooled.
“Northern Ireland was the best performing region, with prices up 14% year-on-year, the highest growth rate since 2007. Wales also saw a significant acceleration in annual growth in house prices at 13.4%, the biggest increase since 2005.
But conditions were more subdued in Scotland, which saw a modest increase in annual growth to 7.1% (from 6.9% in the last quarter) and was also the worst performing part of the UK. This may reflect the fact that the Stamp Duty Holiday (LBTT) in Scotland ended on March 31.
“England saw annual house price growth rise to 9.9%, down from 6.4% in the first quarter of the year.
Reaction to follow….
- Today: SMMT holds its International Automotive Summit 2021
- 9:30 a.m. BST: UK mortgage approvals and consumer credit figures for May
- 10 a.m. BST: hearing of the BEIS committee on the financial relations of GFG Alliance and Liberty Steel
- 10 a.m. BST: Eurozone consumer and business confidence figures for June
- 2 p.m. BST: US home price figures for April
- 2:40 p.m. BST: ECB President Christine Lagarde speaks at Brussels Economic Forum 2021