The UK housing market is flying – according to data released in April from the providers who track this monthly. Nationwide and Rightmove show that the average UK house price is at record highs.

Market Momentum

April 2021 was one of the strongest months for the UK housing market going back to February 2004. The average house price increased by over 2% during the month.

Completed transaction numbers hit record levels in February, exceeding 120,000 for the first time since HM Revenue & Customs (HMRC) records began in 2005 (Source: Savills). It is expected that transaction levels will remain robust throughout the stamp duty holiday extension period, and expect them to peak in June.

Both Nationwide and Rightmove suggest this is not a flash in the pan and that this trend looks likely to continue over the coming months. In this Luna Perspective, we look into the reasons behind these strong increases.


Source: Nationwide House Price Index (April 2021)

Reasons

One reason behind these moves is government and central bank support. The stamp duty holiday which was originally due to expire in January has been extended to the end of June and is then tapered until the end of September.

The tapering means that home buyers will not pay Stamp Duty on properties up to £250k when the normal trigger level is £125k. As well as that, UK interest rates are at record lows of 0.1% – obviously as mortgages rates are closely linked to interest rates so the cost of borrowing has never been lower.


Source: Bank of England. Monthly interest rate of UK monetary financial institutions (excl. Central Bank) sterling 2 year (60% LTV) fixed-rate mortgage to households (in percent) not seasonally adjusted.

One of the first reasons for the move in house prices is down to the supply and demand imbalance. This has been around for several years but is heightened now because of the “Covid impact”.

There are currently not a lot of properties for sale in the UK and this is leading to some of the quickest activity ever with prices increasing. This is best highlighted by the average number of days to sell a property reaching its lowest ever level, and the number of houses selling within a week reaching its highest ever level (Source: Rightmove).

Another consequence of Covid is that individuals have been saving due to the fact they have not been able to spend! This is best highlighted by the UK saving ratio, which is still very high compared to historic standards, meaning that first time buyers can put down a deposit.


Source: Office of National Statistics.

This has been further supported by the strength of Bank balance sheets. Over the last ten years, since the financial crisis, banks have had to become more robust and hold greater capital reserves – this was needed so that if we got another economic shock, the banks are there to support the economy. And that is exactly what has happened, UK banks are a lot more secure now and are able to lend to support the economy. This is probably best highlighted by the reintroduction of 95% LTV mortgages.

The Economic Impact

The housing market has been subdued compared to average levels for a number of years.
Brexit had an impact because that created uncertainty in the UK, and Covid subsequently has had a monumental impact on the overall economy for years to come.

However, with the roadmap now in place and the UK’s transition to having no restrictions by the Summer looking more and more likely – the UK economy is bouncing back strongly.

Coupled with the removal of other historical issues (e.g. Brexit) this is allowing the UK housing market to play catch up from a lost few years.

Not all areas and property types are equal. As we have been so used to spending time at home, homeowners are now looking for space and the last year has seen a dramatic increase in them looking further from city centres.

Some of the biggest increases have been outside of London, and semi-detached 2 and 3 bedroom properties have performed strongest.

Summary

In summary, there are a lot of catalysts behind the strong moves in UK house prices in 2021 and this looks likely to be with us for the foreseeable future.
The stamp duty holiday finally ending at the end of September will bring forward property purchases. Expect to see higher prices through the Summer with some easing off after then.

Looking forward the key driver to property prices will be the ongoing mismatch between supply and demand. There remains a lack of supply for UK housing stock, which should support property prices over the longer term.

Contact Us

To discuss any of the points raised in this update or if there is anything else we can assist you with, please do not hesitate to contact a member of our team at enquiries@lunaim.com or 0161 518 3500.

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