House Prices Dip as Stamp Duty Winds Down

The average house price in the UK has dipped for the first time since January 2021 as the stamp duty holiday starts to wind down. Annual house price inflation is currently at 8.8% compared to 9.6% in May 2021, according to the latest Halifax house price index.

When looking at house prices across the regions and nations of the UK, the East and West Midlands along with Greater London saw a slightly slower annual price gain compared to May, whilst all other regions and nations saw a strengthening of inflation.

Wales saw a 12% rise. The country continues to lead the way on annual house price growth and registered its strongest performance since April 2005. Northern Ireland saw an 11.5% increase, the North West of England saw a 11.5% increase and Yorkshire & Humberside a 10.9% increase while Scotland saw an increase of 10.4%.

Scotland and Northern Ireland have seen the strongest growth, with annual price rises in these areas being the highest recorded since 2007. For the North West of England and Yorkshire, inflation was the strongest since early 2005.

However, the South East of England has continued to see a lag in comparison to the rest of the country, with Eastern England and the South East of England recording an annual inflation rate of around 7%.

Once again, Greater London is an outlier, with house price inflation here being just 2.9% year on year. However, it should also be taken into consideration that there are other unique factors that are likely to be weighing on the UK capital’s property market.

Russell Galley, Managing Director, Halifax, said: “The average UK house price slipped by -0.5% in June, the first monthly fall since January. As a result, annual house price inflation also eased back slightly from May’s 14-year high of +9.6% to stand at +8.8% in June. It is important to put such a moderate decrease in context, with average prices still more than £21,000 higher than this time last year, following a broadly unprecedented period of gains.

“With the stamp duty holiday now being phased out, it was predicted the market might start to lose some steam entering the latter half of the year, and it’s unlikely that those with mortgages approved in the early months of summer expected to benefit from the maximum tax break, given the time needed to complete transactions.

“That said, with the tapered approach, those purchasing at the current average price of £260,358 would still only pay about £500 in stamp duty at today’s rates, increasing to around £3,000 when things return to normal from the start of October.

“Government support measures over the last year have helped to boost demand, particularly amongst buyers searching for larger family homes at the upper end of the market. Indeed, the average price of a detached home has risen faster than any other property type over the past 12 months, up by more than 10% or almost £47,000 in cash terms. At a cost of over half a million pounds, they are now £200,000 more expensive than the typical semi-detached house.

“That power of home movers to drive the market, as people look to find properties with more space, spurred on by increased time spent at home during the pandemic, won’t fade entirely as the economy recovers. Coupled with buyers chasing the relatively small number of available properties, and continued low borrowing rates, it’s a trend which can sustain high average prices for some time to come.

“However, we would still expect annual growth to have slowed somewhat more by the end of the year, with unemployment expected to edge higher as job support measures unwind, and the peak of buyer demand now likely to have passed.”

Commenting on the latest Halifax House Price Index, Stuart Law, CEO of the Assetz Group, said: “As the stamp duty holiday begins to taper off, it is no surprise that house prices have dropped slightly as buyers raced to complete transactions earlier in the year, well before the June deadline. However, while it is expected that the end of the stamp duty holiday will initially have a dampening effect on house prices, we expect demand to continue to be strong, both later in the year and next year, pushing prices up over the longer term. In our view, prices could well rise by 8-10% in both 2021 and 2022 due to a combination of factors going forward.

“Firstly, we believe interest rates will stay very low going into next year helping ensure mortgage deals remain relatively cheap while it is also expected that inflation and labour shortages will lead to increased wage growth, both of which will be key factors in driving market activity and keeping house prices high. Whilst inflation normally leads to interest rates being raised, this time the Bank of England has suggested this will not happen if inflation is temporary.

“More widely, it is becoming increasingly clear that the impact the pandemic has had on housing trends is here to stay, with homeowners looking for more spacious homes in suburban and rural areas to make the most of our new hybrid way of living and working. Increased demand for new types of housing in newly popular locations will only amplify the ongoing housing crisis in the UK, ultimately pushing up prices over the longer term, particularly for suburban and countryside houses.

“SME housebuilders will be the key to meeting this demand, utilising their local knowledge to address shifting housing trends, as well as their ability to adopt innovative housebuilding processes at speed. We’ve already received hundreds of millions of pounds worth of loan applications from housebuilders looking to make the most of current market dynamics and support the nation’s housing needs which could ultimately create new supply that acts as a stabiliser for pricing over the long term.”

Nicky Stevenson, Managing Director at national estate agent group Fine & Country, said: “The housing market has been running on rocket fuel for some time, but this is evidence that things may finally be starting to plateau.

“The ticking clock of the stamp duty holiday deadline means buyers whose sales have not completed have missed the opportunity to take advantage of the full giveaway as we experience a phased return to full rates.

“But there is no suggestion we’re now facing a nosedive, and buyers beginning transactions will recognise they have already lost this race against time because of the conveyancing delays involved.

“Despite the monthly dip, annual price rises across most of the country remain impressive, and indeed makes growth in previous years look rather mundane.

“Buyers seem determined to pounce on desirable properties and the appetite for larger homes with outdoor space remains strong.

“We expect to see other key drivers of the boom remain unchanged throughout the rest of the summer. Ultra-low interest rates, a dearth of housing stock, and accidental savings built up during the pandemic means things will remain buoyant for some time to come.

“Those waiting for a dramatic correction in house prices might find themselves waiting a very long time, and the stage is now set for a summer of healthy annual growth to continue.

“With the government now committed to lifting restrictions on July 19, London will once again be the city to watch as offices open again and employers invite their staff back in.

“Growth in the capital has been subdued in recent years but it remains a city of ambition, and don’t be surprised to see the property market take off there once again.”

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