UK house prices rose by almost £5,000 in August as the property market continued to boom after the partial end to the government’s stamp duty holiday in England and Northern Ireland.
The Nationwide building society said the cost of the average home had increased by £4,628 to £248,857, a monthly rise of 2.1% – the second highest in 15 years.
Despite expectations that house price inflation would ease after the threshold for paying stamp duty was lowered from £500,000 to £250,000 in July, year-on-year property inflation rose to 11% in August, up from 10.5% the previous month.
Nationwide put the strength of the market in August down to a lack of properties for sale and buyers of homes worth less than £250,000 seeking to complete purchases before the stamp duty threshold reverts to its pre-crisis norm of £125,000 in October.
Record low interest rates, the demand for more spacious properties during the pandemic, and the incentives provided by the chancellor, Rishi Sunak, have meant the average UK house price is up by 13% since the start of the crisis 18 months ago.
Last month’s house price increase follows a short-lived contraction in July when house sales tumbled by two-thirds after the government scaled back tax breaks for new buyers. Nationwide said price growth had shrunk by 0.6% before the August rebound.
Robert Gardner, Nationwide’s chief economist, said: “The bounceback 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 said the increase may reflect strong demand from those buying a property priced between £125,000 and £250,000 who hope to take advantage of the stamp duty relief before it comes to an end, combined with a low number of properties on estate agents’ books.
Nationwide expects the trend in rising property prices to continue in the short-term because of a rebound in consumer confidence alongside tight supply of properties. However, the outlook for the property market by the end of the year is “still clouded”.
It said activity in the property market would “almost inevitably” slow down when the stamp duty holiday winds down at the end of the month, and property demand could stall if the end of the year brings a rise in unemployment as government support schemes come to an end.
“But even this is far from assured,” Gardner said. “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.”
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Tom Bill, the head of UK residential research at Knight Frank, said: “The housing market has clearly lost none of its core strength, and rising business confidence and rock-bottom interest rates signal a strong end to the year, even as the stamp duty holiday winds down completely.”
Lucy Pendleton, from the estate agents James Pendleton, said: “This is a timely lesson that it’s the fundamentals of the market that are all-powerful still. Sunak’s generous state handout has turned out to be more a demonstration of misdirection than crisis management.
“The market didn’t need his money and, with hundreds of billions tucked away in accidental savings, Britons are continuing to satisfy a deep-seated determination to move after a traumatic 18 months.”