House prices fall as stamp duty holiday end rattles market

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stamp duty holiday

Property prices have dipped to push the average cost of a home back below the record £230,000 as the market reaches crunch time ahead of the end of the stamp duty holiday.

Prices fell 0.3% in January compared to the previous month, according to the Nationwide House Price Index. On an annual basis house price growth slowed to 6.4%, down from 7.3% in December.

The average price of a property in the UK is now £229,748, by Nationwide’s measure, which is based on data at the mortgage approval stage.

Guy Harrington, CEO of residential lender Glenhawk, said: “Cracks are finally beginning to appear as the economic backdrop continues to deteriorate and stamp duty help draws to a close.”

The temporary removal of stamp duty tax on properties below £500,000 enacted in July to support a housing market flagging due to national lockdowns, is set to finish at the end of March. The move has sent the number of transactions, and prices, soaring.

Mortgage lenders and brokers are calling on the government to extend the deadline. “An environment of new austerity measures and falling household income would likely quickly reverse the house price gains we have seen over the past year, as mortgage providers could be less flexible leading to transactions drying up,” Harrington said.

Nationwide attributed the fall in January’s property prices largely to a tapering of demand ahead of the end of the stamp duty holiday, which prompted many people considering a house move to bring forward their purchase.

While the stamp duty holiday is not due to expire until the end of March, activity would be expected to weaken well before that, given that the purchase process typically takes several months.

“Buyer momentum from last year has clearly overspilled into 2021 with annual house price growth remaining above 6%,” said Paresh Raja, CEO of lender Market Financial Solutions.

The challenge, he added,  “is ensuring the necessary finance can be arranged ahead of the stamp duty deadline so existing sales can be completed. Over the coming weeks, the pressure will be on mortgage providers and lenders to meet this demand”.

Changes to peoples’ housing needs to the pandemic, with many opting to move to less densely populated locations or property types, may have broken the traditional link between economic trends and the housing market, but Nationwide warned this was unlikely to continue in the mid-term.

“If the stamp duty holiday ends as scheduled, and labour market conditions continue to weaken as most analysts expect, housing market activity is likely to slow, perhaps sharply, in the coming months,” Nationwide’s chief economist Robert Gardner said.

Data from the Department for Housing, Communities & Local Government (MHCLG) indicated a slight increase in the home ownership rate in 2020, to 64.6% (from 63.8% in 2019). This is the third year in a row that the home ownership rate has increased, though it remains well below its 2003 peak of 70.9%

Tomer Aboody, director of property lender MT Finance, pointed out for London, however, home ownership is just 50%, “cementing the disconnect between earnings and affordability in the region”.

Pushing buyers further out in order to find space in the commuter belt is “a shift which may never see these buyers return, particularly when combined with the new trend of working from home and wanting more room”, he adds.