House prices broke a new record high in August, increasing by 3.7 per cent year on year to reach an average of £224,123, according to Nationwide.
The seasonally-adjusted monthly increase of 2 per cent was the steepest for sixteen years and built on the July’s growth of 1.8 per cent.
Nationwide chief economist Robert Gardner says: “House prices have now reversed the losses recorded in May and June and are at a new all-time high.
“The bounce back in prices reflects the unexpectedly rapid recovery in housing market activity since the easing of lockdown restrictions.”
Nationwide says the rebound is being driven by a number of factors.
Gardner adds: “Pent-up demand is coming through, where decisions taken to move before lockdown are progressing.
“Behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown.
“Our own research, conducted in May, indicated that around 15 per cent of people surveyed were considering moving as a result of lockdown.
“Moreover, social distancing does not appear to be having as much of a chilling effect as we might have feared, at least at this point.
“These trends look set to continue in the near term, further boosted by the recently announced stamp duty holiday, which will serve to bring some activity forward.”
However, Gardner warns that the current momentum may not be long-lived: “Most forecasters expect labour market conditions to weaken significantly in the quarters ahead as a result of the aftereffects of the pandemic and as government support schemes wind down.
“If this comes to pass, it would likely dampen housing activity once again in the quarters ahead.”
Coreco managing director Andrew Montlake shares these concerns.
He says: “Two words: reality check. As strong as the property market is right now, it will not last.
“Demand is understandably strong after lockdown and the added bonus of the stamp duty holiday, but unemployment is rising by the day and the economic outlook is highly uncertain as the furlough scheme ends.
“In the final months of the year we will start to see a reversal in the current rate of house price growth, as the true impact of Covid-19 on the economy shows through.
“On a positive note, there are many people whose lives and jobs are largely untouched by the pandemic who will continue to move home even as the broader economic picture deteriorates.
“What we’re also seeing is a huge amount of people looking for a second property or holiday home.
“The stamp duty holiday has spurred more landlords into action, too, while mortgage rates in this sector of the market have never been as cheap.
“For first-time buyers, sadly, the stamp duty holiday is largely academic as lenders are struggling to provide the mortgage finance.
“If lenders can improve in this area, that will provide additional support to the market.”
Private Finance mortgage consultant Chris Sykes is similarly cautious about reading too much into August’s price rise.
He says: “This buoyancy may not last for long.
“Severe uncertainty over the strength of the UK’s economic recovery is persisting, while concerns about the reintroduction of a nationwide lockdown are mounting due to an uptick in infections.
“This could cause the market to readjust to reflect the new economic reality.
“The ending of the government’s eviction ban in September could lead to a surge in landlords trying to remove tenants from properties.
“This may cause a great deal of negative publicity, possibly suppressing appetite for new buy-to-let purchases.
“Landlords may even sell some of their properties to avoid potential difficulties moving forward.
“Lenders are beginning to hedge against high uncertainty levels in the UK economy by reducing their exposure to riskier borrowers.
“Moving forward, lenders especially at the high 85-90 per cent loan to value end of the market are likely to offer products with lower rates for a short period and quickly withdraw or increase them due to being inundated with applications.”
