House price growth has clung to double digits this month, despite fears the end of the first stamp duty holiday would lead to a cliff-edge in house prices.
With prices cooling off just 0.5 per cent compared to June, annual house price growth sat at 10.5 per cent in July, according to Nationwide’s latest house price index.
According to Nationwide, price growth had enjoyed a 17-year high of 13.4 per cent in June and chief economist Robert Gardner called the July dip a “modest fallback”.
He said it was “unsurprising”, given the “significant gains” made in house prices between April and June, which the lender worked out as an average of 1.6 per cent month-on-month.
“[This is] more than six times the average monthly gain recorded in the five years before the pandemic,” said Gardner.
As a result, he said “the ‘savings’ from the stamp duty holiday have been dwarfed by the impact of recent house price gains”.
Under the government's tax break between July 2020 and the end of June, the first £500,000 of a property’s value incurred no stamp duty land tax.
Gardner pointed out that for a £500,000 property which saw the same average increase as the “typical” UK property over this period, the comparable house price increase was around £57,000 against a stamp duty saving of just £15,000.
Gareth Lewis, commercial director of property lender MT Finance, echoed Gardner's thoughts.
He added: “House prices haven’t fallen off a cliff. Consumer confidence is still relatively high. Buyers haven’t got to the end of June and said they are not going to proceed with a purchase any longer."
He said those who couldn’t meet the deadline “are still continuing in order to take advantage of the reduced stamp duty savings before the end of September”.
Recent research supports this observation. According to a survey commissioned by mortgage broker John Charcol, released today (July 28), two thirds of people who bought a home in the last year said the stamp duty holiday did not play a major part in their decision to buy.
The London School of Economics found the stamp duty holiday generated 140,000 “extra” transactions in the UK mortgage market, but contributed a meagre 0.1 per cent of GDP.
For the economy as a whole, LSE distinguished policy fellow Kath Scanlon said the stamp duty tax holiday probably wasn’t “so much” worthwhile due to the spike in house prices, compared to how worthwhile it was for the industry and its employers.
Looking to the next month, Lewis said: “August’s figures could well fall again because of the time of year, with many people trying to get away on holiday.
“It will be interesting to see what happens in September, and whether that final push to take advantage of the tail end of the stamp duty holiday will provide some further stimulus to get over the line, keeping prices high.”
Meanwhile chief executive of property consultancy SPI Capital, Anna Clare Harper, warned the pace of growth “makes ‘affordable home ownership’ for most younger and less well-off people unlikely”.
She put this down to the fact house price growth was outpacing wage growth. Annual pay growth was 5.6 per cent in February to April 2021, according to the Office for National Statistics, compared with the house price market’s double-digit annual growth.
Harper added some in the industry “fear a crash”, but she suspects this will be fended off by the constraint on supply as demand continues to grow.
“We need 340,000 new homes built annually up to 2031 and remain well below this, at around 160,000 each year for the past two years,” she explained. “At the same time, a mass sell-off from property owners is unlikely in the absence of significant interest rate rises.”
ruby.hinchliffe@ft.com
