UK house prices ‘extremely buoyant’ in November despite inflation risks

The booming UK property market continued to be “extremely buoyant” in November despite the tax break on home buying coming to an end.

The Nationwide price index rose a strong 0.9 per cent last month compared with October, taking the average value of a home to £252,687, the highest since records began.

The monthly gain in house prices surpassed the 0.5 per cent forecast by economists polled by Reuters. The value of homes rose 10 per cent from November last year and almost 15 per cent above March 2020 levels when the Covid pandemic struck the UK.

Robert Gardner, Nationwide’s chief economist, noted that “momentum” and “shifts in housing preferences” as a result of the pandemic affecting people’s preferences for homes would continue to support activity.

He said housing activity “has been extremely buoyant in 2021” and expected it to remain “fairly buoyant” in the coming months, after robust signs from the labour market following the end of the government furlough scheme.

Low borrowing costs and the lack of properties for sale further bolstered demand in the market. Average stock levels on surveyors’ books dropped to levels not seen for almost 43 years in October, according to data from the Royal Institution of Chartered Surveyors, a professional body.

Anna Clare Harper, chief executive of property consultancy SPI Capital, said that “a severe shortage of quality housing, and the wide availability of cheap finance . . . demand exceeds supply and house prices continue to rise”.

The strong growth in house prices contrasts with many economists expectations that the market would cool after government support to the sector ended.

The stamp duty holiday, introduced in July 2020 after the first coronavirus lockdown, granted homebuyers a tax break on the first £500,000 of any property purchase in England or Northern Ireland.

The tax-free limit was halved to £250,000 at the end of June this year and came to an end in October.

However, rising interest rates, declining affordability and high inflation could eventually drag on the housing market.

“Mortgage rates are about to rise significantly,” warned Samuel Tombs, economist at Pantheon Macroeconomics, adding that rates “will rise enough over the coming months to ensure that house prices stagnate in the first half of 2022”.

But the prospect of higher rates, for now, is boosting housing demand, according to Lucy Pendleton, property expert at estate agents James Pendleton.

“The rush to beat rate rises is fuelling an unusually busy market,” she said.

Gardner noted that house price growth has been outpacing income growth by a significant margin and, as a result, homes are less affordable than before the pandemic struck. This could have a cooling effect on house prices over the coming months, he added.

Rising inflation, which the Bank of England expects to peak at 5 per cent in April, could further weigh on house spending.

“House prices usually struggle to rise when households’ real disposable income declines, as looks likely over the next year, due to higher inflation and taxes,” said Tombs.

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