Wednesday morning saw the release of a monthly report from Halifax, one of the UK’s biggest mortgage lenders. The report showed that in June, UK house prices fell for the first time in five months.
The average price of a home in the UK fell by 0.5% in June to £260,358. June’s decline followed a 1.2% increase in May and is the first decline since January. DailyInvestNews reported January’s UK house price decline, which at the time, was the first drop in seven months.
The Stamp Duty Holiday Factor
June’s decline comes as the stamp duty holiday in England and Northern Ireland is now being tapered. It will then be phased out fully in the autumn.
The “nil rate” stamp duty band was reduced from £500,000 to £250,000 from July 1. It will then revert to its normal level of £125,000 from October 1.
The stamp duty holiday meant there was no tax to pay on property purchases up to £500,000 in England and Northern Ireland. It provided a massive to the UK housing market during the pandemic period. Despite the pandemic and lockdowns, the UK housing market remained buoyant. Mortgage approvals hit a 13-year high in December. They then hit a 14-year high in May, with both the stamp duty holiday and people moving for more space, seen as the key driving forces.
Context: Year-on-Year
Although June’s decline was disappointing and prompted questions such as is the UK housing boom over? there is context. UK house prices are 8.8% higher from the same time last year. Average property prices were still more than £21,000 higher than a year earlier. Also, May saw a 14-year high in UK house prices reached, having risen 1.2% from the month previous.
The Halifax figures also contrast to those of banking rival Nationwide. Rival lender Nationwide reported at the end of June that its house price data showed a 13.4% jump in house prices over the previous 12 months, This was the largest increase in more than 16 years.
At the time, Robert Gardner, the Nationwide chief economist, said: “While the strength is partly due to base effects, with June last year unusually weak due to the first lockdown, the market continues to show significant momentum. Indeed, June saw the third consecutive month-on-month rise, after taking account of seasonal effects. Prices in June were almost 5% higher than in March.”
Market Might Start to Lose Some Steam
Meanwhile, Russell Galley, managing director, Halifax said after today’s figures: “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.
Cooling as Demand Has Peaked
The general consensus is that rather than the start of a housing crash, it is more of cooling as demand has peaked. There was a final rush of buyers looking to take advantage of the stamp holiday whilst they could which has now ended. What we are seeing now, is the cooling-off from that peak demand.
Lucy Pendleton, of the independent estate agents James Pendleton, said: “Property supply is still failing to keep up with demand, with some buyers holding off marketing their property because they cannot see anywhere to move to, creating a vicious cycle of low supply and consequently causing intense up-bidding on the most desirable properties.”
Other forward-looking indicators point to the market remaining strong. Interest rates are at a record low. Mortgage approvals rose in May. The Royal Institution of Chartered Surveyors said a shortage of new properties being made available in the market was contributing to an increase in prices.
However, the latest report from the Royal Institution of Chartered Surveyors is due this Thursday. There is a strong possibility these will tell a different story. Indeed, the coming months will be vital to fully ascertain if the UK housing boom is over. What is clear, is that it is certainly cooling. An interesting summer awaits.
