The price of the average UK house soared by 10.9% year-on-year in May, the largest increase witnessed since August 2014 and only the fourth biggest increase over the past decade. Compared to one month before, prices rose by 1.8% in May following a 2.3% rise in April. According to the Nationwide House Price Index [i], the price of the average UK house has soared by almost £24,000 over the past twelve months and by nearly £12,000 in the year-to-date. The number of housing transactions has also skyrocketed to a record-high but while March’s spike in transactions was driven by the original end date of the stamp duty holiday, a lot of momentum has been maintained. Nationwide’s research shows that extension to the stamp duty holiday is not the key factor, though it is clearly impacting the timing of transactions. Research by Capital Economics [ii] suggests price increase will be sustained in the near-term and prices will continue to rise over the next four years, albeit not as rapidly as they did in 2020. Although as mentioned in the Nationwide House Price report, there are still uncertainties in the market, particularly if unemployment rises towards the end of the year as analysts expect.
Chart of the month: Monthly UK house price, annual % change
Source: Nationwide House Price Index, Blend Network
- The UK housing market has seen a complete turnaround over the past twelve months. A year ago, activity collapsed in the wake of the first lockdown: housing transactions plunged to a record low of 42,000 in April 2020. However, the market recovered over the summer of 2020 and activity surged towards the end of last year and into 2021: housing transactions reached a record high of 183,000 in March, as shown in Figure 1.
- A recent research by Capital Economics [iii] argues that household income and interest rates are the main drivers of house prices. In this context, the report maintains that due to the nature of the Covid-19 recession, the housing market has benefitted from the fact that home purchasers are typically from higher income groups. The research concludes that based on the assumption of a quick and full economic recovery and Bank Rates remaining at 0.10% until 2025, UK house prices will continue to rise over the next four years, albeit not as rapidly as they have done in most recent months.
- Capital Economics’ argument around higher income groups is also somehow supported by the findings of a Nationwide survey [iv]: amongst homeowners surveyed at the end of April that were either moving home or considering a move, 68% said this would have been the case even if the stamp duty holiday had not been extended. Shifting preferences and people reassessing their needs continue to drive activity.
Figure 1: UK housing market transactions
Source: Nationwide House Price Index, HMRC, Blend Network
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[i] Source: Nationwide House Price Index https://www.nationwide.co.uk/about/house-price-index/headlines
[ii] Housing Market Update: How the housing market survived Covid-19. Capital Economics, 28 April 2021
[iii] Housing Market Update: How the housing market survived Covid-19. Capital Economics, 28 April 2021
[iv] Research conducted online by Censuswide, 23-27 April 2021, with a nationally representative 3,012 general consumers aged 18+ across the UK. Source: Nationwide House Price Index https://www.nationwide.co.uk/about/house-price-index/headlines