UK Property – House prices set to soar as buyer demand continues to boom

  • UK house price growth expected to soar as buyer demand shows no signs of abating
  • Conveyancing forecasts suggest that the UK property market will heat up in July
  • Britons spent more money purchasing homes than during any other financial crisis
  • London property market continues to boom despite the economic downturn
  • Experts warn that some solicitors are charging extortionate SDLT fees

After some initial turbulence following the first national coronavirus lockdown, Britain’s property market has defied the odds and boomed since June 2020.

Experts have said that UK Chancellor Rishi Sunak’s stamp duty holiday has been the catalyst for house price growth as prospective buyers and homeowners rushed to take advantage of the tax savings.

Before Mr Sunak extended the stamp duty holiday, estate agents had reported a decrease in buyer demand and new enquiries as many people put plans to purchase homes on hold until they received further clarity over the tax break.

While competition from buyers has tailed off slightly, UK estate agents are as busy as ever as housing market activity remains exceptionally strong across the country.

According to the independent firm, Reallymoving, conveyancing quote volumes are approximately 60% higher than normal levels for this time of the year, and UK house prices are set to continue climbing in June and July as buyers remain “highly motivated.”

Rishi Sunak new stamp duty cut on homes up to GBP 500,000

UK house prices expected to heat up in July

Reallymoving makes conveyancing forecasts by capturing the purchase price buyers have agreed to pay when searching for quotes and other moving-related services through its website, which tends to occur three months before completing the transaction.

The 12-week window provides Reallymoving with an indication of house price forecasts over the coming months, which they expect to follow an upward trend.

Although the research is conducted independently, Reallymoving’s conveyancing forecasts have historically tracked closely to the UK government’s Land Registry’s Price Paid Data.

After analysing the data, Reallymoving expects UK housing prices to slump by 5.8% in May as some buyers captured in the most recent research sample would have agreed on transactions before the UK Chancellor extended the Stamp Duty Land Tax (SDLT) break.

According to Reallymoving, prices peaked at GBP 343,198 in December 2020 before declining in the five months to May due to the anticipated end of the stamp duty tax reduction.

However, the independent firm predicts another price boom in June and July, expecting growth of 2.9% in June and 3.7% in July.

Based on those figures, this would take the average property value in the UK to GBP 311,111 in June and GBP 322,672 the following month – significantly higher than last year’s prices at GBP 237,834 and GBP 237,963 respectively.

Annually, UK property prices had remained in positive territory since late last year, with growth accelerating in the run-up to 2021 as buyers rushed to get their property transactions across the line before the stamp duty holiday concluded.

Predicating on deals agreed this spring, Reallymoving expects annual house price growth to come in 6.5% higher in June and 7.8% higher in July.

Rob Houghton, CEO of the house comparison site, said he expects vigorous housing market activity to continue into the summer as “buyer demand has displayed no signs of abating.”

Mr Houghton explained that “the prominent shift in buying priorities brought about by the coronavirus pandemic has resulted in growing demand from equity-rich homebuyers who, freed from their daily commute, can look further afield for homes they’ve long dreamed of.”

Rob Houghton’s comments follow data published by the Office for National Statistics (ONS), revealing that UK housing prices jumped by 10.2% in the year to March 2021 – the fastest rate of annual growth in 11 years.

UK housing market prices 2021

Britons continue to take advantage of the stamp duty holiday

According to the data, Britons spent more money purchasing property between March 2020 and March 2021 than during any other 12-month period since before the financial crisis.

In England and Wales, data shows that Brits spent a total of GBP 2.74BN on purchasing property, approximately 8% higher than the figures recorded in the previous financial year.

Meanwhile, the number of homes sold in the 12 months to March soared by 1.6%, registering at 1.06 million.

Nicky Stevenson, Managing Director of the prime residential property estate agent Fine and Country, said the UK government expects 180,000 properties transactions to cross the line for March 2021, which would mark the highest number of transactions recorded since 2005.

Given that transactions usually average 82,000 a month, figures for March show a significant increase in housing market activity.

Even though demand heavily outweighs supply, and soaring housing prices are wiping out the stamp duty savings, buyers appear undeterred.

After months of coronavirus lockdown restrictions, a more significant proportion of savings has been accrued, and as a result, buyers are in a better position to make housing deposits.

Furthermore, as borrowing costs are near some of their lowest levels and flexible working arrangements have allowed buyers to review their location, those with significant equity have been able to move up the ladder or acquire property better suited to their needs.

Borrowing costs remain low, and those with plenty of equity are in a solid position to move up the ladder to a property that better meets their new requirements.

Despite fierce competition, a combination of record-low interest rates and lockdown savings has encouraged buyers to chase the house of their dreams – which is driving up housing prices.

Other indices such as the Halifax House Price Index and the Nationwide House Price Index have shown annual property price increases of 8.2% and 7.1% in the year to April.

They also said the housing market has shown further signs of heating up but warn that the higher costs could price first-time buyers out of the market.

However, that could be contested given that first-time buyers continue to maintain approximately 55% of their market share, and this is set to rise further, thanks to government-backed loans.

A separate report from London-founded estate agency, Knight Frank, has also suggested that UK house prices are undergoing a “short-term distortion” and downward pressure will return to the market as supply increases.”

Still, the strength of the housing market amid the COVID-induced economic downturn has taken most by surprise, “even when taking government support and wage subsidies into consideration,” says Joe Garner, chief executive of Nationwide.

House prices continue to trend upwards despite Britain’s economic downturn

Nationwide boss, Joe Garner, said housing market activity had been underpinned by a “structural shift” as priorities have changed in the wake of the COVID crisis.

More flexible working arrangements have fuelled interest in larger homes with office rooms and ample outdoor space away from metropolitan areas.

The chief executive of the nation’s second-largest lender said: “People don’t say: ‘Oh look, there’s a discount on stamp duty, let’s move home.’ That’s not how it works. People are thinking of their house less as an investment and more as a home.”

According to a survey of homeowners conducted in April 2021,  Nationwide found that 25% of respondents were in the process of or considering purchasing a house due to COVID-19 – 3% lower than levels seen during September last year.

The difference suggests that demand in the market is still strong and that it only takes a small proportion of buyers to keep the housing market moving.

Mr Garner noted that there “will be spells when activity declines but given that buyers are more eager to purchase homes than make investments, the day-to-day value of the property becomes somewhat irrelevant if they have their hearts set on the house.”

Still, as demand outweighs supply, economists fear that the housing market is overheating and have warned of a market crash.

Is a housing market crash on the cards?

Prices have risen by several thousand British pounds (GBP) over the past year as there are not enough houses with the kind of space that people now require.

London’s property market is expected to see relatively strong house price growth over the next three years as demand returns for apartments and other city-centre properties that Brits had avoided during the COVID crisis.

According to a recent study, most Britons believe owning a home is more important than marriage and early retirement.

Yet, despite surging demand, record-low interest rate offers, land shortages, construction pressure and rocketing property prices, economists expect the housing bubble to burst when the UK government’s support schemes end.

Professor Paul Cheshire from the London School of Economics (LSE) warns that housing prices are higher than they’ve ever been before, and the housing market is currently unstable. He believes that as people are aware of the stamp duty timeframe, its conclusion will trigger a significant shift to the market, which will filter through to the broader economy.

Concerns have also been raised over the overheated market pricing out a significant portion of buyers from the market as the recent surge in UK housing prices has outpaced the rise in average earnings.

Despite the stamp duty savings, the number of affordable housing is declining, and as a result, many property buyers feel like they will be unable to purchase homes.

Jeremy Leaf, a London estate agent and former RICS residential chairman, also highlighted that solicitors are charging extortionate transaction fees as the stamp duty holiday tapers to a close, which could have negative repercussions on the market.

Although activity has not slowed down, exorbitant fees and the lack of new stock could frustrate motivated buyers and cause them to put plans to purchase property on ice.

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