Asking price for UK homes hit a record number

• UK buyer activity strong despite scaling down of stamp duty holiday
• British Chancellor Rishi Sunak’s tax break deadline spurred an increase in monthly sales
• Rightmove figures reveal that home asking prices in the UK hit record number in July
• Shortfalls in supply have stretched affordability for prospective buyers

According to the leading online real estate portal Rightmove, Britain’s housing market experienced the busiest first half of the year on record in 2021. Rightmove said that the surge in home sales had been driven by UK Chancellor Rishi Sunak’s stamp duty holiday deadline, which has triggered “frenzied buyer activity.” New figures reveal that the average asking price for homes in Britain hit record numbers between mid-June and early July, with property prices rising by 0.7% compared to the previous month.

Rightmove said the first half of the year saw the most considerable increase in property prices since 2007.

The online real estate portal expects figures out from HMRC due later this week to confirm that June posted a record number of monthly sales, as buyers raced to get their housing transactions across the line before the Treasury reduced the tax break threshold.

Until June 30th, buyers could take advantage of a tax break on residential property worth up to GBP 500,000 in England and Northern Ireland. The threshold was reduced to GBP 250,000 from July 1st and is scheduled to terminate on September 30th.

Scotland and Wales introduced similar initiatives but on a much smaller scale. In Scotland, the temporary tax break ended in March, while the Land Transaction Tax (LTT) in Wales returned to its standard pre-pandemic rate on July 1st.

House prices across Britain have surged since the COVID-19 breached British borders as coronavirus lockdown restrictions triggered a significant shift in housing priorities.

People working from home began seeking out more significant properties with ample garden spaces and rooms capable of being transformed into offices.

Mr Sunak’s stamp duty holiday boosted buyer activity and appetite to move amid the coronavirus pandemic, triggering a surge in prices across the country.

However, Rightmove data revealed that the extended tax break in England, Wales and Northern Ireland had created shortfalls in supply as buyers have brought plans to purchase a new home forward to take advantage of the tax savings.

Still, the real estate portal – which advertises approximately 90% of homes for sale in the UK – said that supply shortages support the market by creating strong demand.

Albeit, Tim Bannister, Rightmove’s director of property data, noted that the imbalance between supply and demand has presented prospective buyers with “little choice, continuing price rises, and stretched affordability.”

Shortfalls in housing supply impacting prospective buyers

Frenzied buyer activity, fuelled by the looming stamp duty holiday deadline, has triggered a surge in home sales and widened wealth inequalities between property owners and those who aren’t on the property ladder.

According to Rightmove’s latest housing price index, average asking prices for new listings rose to a record GBP 338,447 (USD 462,855) in June – an increase of more than GBP 21K over the last six months.

Last month marked the fourth successive month that asking prices for UK homes hit record numbers and the housing market appears to be set on defying the odds.

However, the booming housing market, which has helped reverse the 10% slump the UK economy experienced in 2020, is pricing new entrants out of the market.

Rightmove’s report noted that first-time buyers are paid an average of GBP 213,336 for British property in May- a 9.5% increase on the same month the previous year.

Furthermore, as new entrants to the property market would have qualified for the standard stamp duty relief on homes worth up to GBP 300,000, many have not benefited from the tax savings introduced to stimulate the housing market amid the COVID crisis.

Getting a foot on the property ladder before the coronavirus pandemic was no easy task, but first-time buyers must now feel like the odds are stacked against them.

Separate data from Santander has revealed that first-time buyers are the biggest losers of the pandemic, and it is no wonder, given that the gap between new entrants and currency homeowners has widened significantly over the past 16 months.

According to Santander, 44% of first-time buyers surveyed said they had delayed plans to purchase a home due to rising costs despite homeownership being a major priority for almost two-third of new property market entrants.

With demand still high as consumer confidence returns to pre-pandemic levels, courtesy of the lifting of coronavirus lockdown restrictions and the end of social distancing and mask-wearing rules, there’s little to suggest that property prices will take a hit in the near term.

Separate data from Deloitte revealed that confidence amongst UK consumers neared pre-pandemic levels in June, with 58% of survey participants admitting that they intend to spend considerably on holidays, hospitality, retail and going out over the next three months.

The survey, which questioned more than 3,000 British residents between June 18th – June 21st, also found that 79% of respondents saved significantly during COVID lockdown restrictions.

However, the tapering down of the stamp duty holiday could cause the speed of price growth to slow. Alternatively, the imbalance in demand and supply could keep prices higher over the coming months irrespective of the smaller tax savings offer.

Official data revealed that UK house prices jumped up by 10% in the year to May – the fastest growth rate since before the 2007/08 financial crisis.

UK housing supply shortage driving prices higher

Elevated buyer activity has left Britain with a severe shortage of housing supply, particularly for four-bedroom homes, which are facing the most significant imbalances in terms of demand versus supply.

According to Rightmove figures, 140,000 more home sales were agreed than the long term average in the first half of 2021, but there were 85,000 fewer new listings, resulting in a shortfall of 225,000 properties on the housing market.

There has also been a 39% surge in home sales for H1 2021 compared to a 15% drop in the first half of 2019, with the average number of properties available for sale per estate agency firm falling to an unprecedented low of 16, versus long term averages of 31.

Rightmove director of property data, Tim Bannister, said: “We predict that the number of completed sales will be the highest ever seen in a single month when June’s data is released by HMRC later this week.”

Mr Bannister added that “frenzied buyer activity and the dramatic shortfall in supply has fuelled UK house price growth and resulted in record-low stock levels.

“With high activity levels continuing despite the June stamp duty deadline now passing, there is an urgent need for these low stocks of property for sale to be rebuilt for price stability to return.”

However, Rightmove noted that first-time buyers would be delighted to find that properties they typically make offers for, namely two-bedroom homes, have similar stock levels to 2019.

With more people searching for larger properties with ample outdoor space, the stock shortage for two-bedroom houses is less acute. While choice remains limited, compared to the same period two years ago, price growth in this sector is more subdued than in any other category.

Although saving a deposit is a challenge due to inflationary pressures, slow wage growth and rising unemployment in young people, which tend to account for most first-time buyers, new market entrants can take advantage of 5% mortgage schemes.

Mr Bannister suggested that first-time buyers take advantage of 5% mortgage deposit schemes to get on the property ladder and navigate price challenges.

Marc von Grundherr, director of Benham and Reeves estate agent, believes that Mr Sunak’s temporary tax break is fuelling a surge in buyer activity and creating supply shortfalls.

Mr Grundherr stated: “House prices have reached record highs for another month despite concerns aired over reduced activity due to the scaling back of the stamp duty holiday.

“Britain’s property market continues to defy expectations, and there’s no doubt that the tax break has been the catalyst for this impressive market performance.”

However, Marc von Grundherr noted that it is not the sole reason for higher prices and expects demand to remain strong due to the shift in housing priorities.

Months of stay-at-home orders and an end to the daily commute brought about by the rise in remote working has given people time to re-evaluate their housing and family needs, prompting an exodus from cities to more rural areas.

Before COVID-19 hit, homes served a purely functional purpose for many people – to live and provide a base for the family. However, as we emerge from the coronavirus pandemic, they have become increasingly multi-functional as homeowners need the home to serve as a place to work, teach children, entertain guests, exercise and have leisurely time.

Space and gardens feature as the top priority for many buyers in 2021, hence the significant rise in detached dwellings, with prices surging a third faster than the price of flats.

The ongoing creation of new builds and the idea that property is an asset to hold has also boosted demand.