UK house prices fell month-on-month in January for the first time since the introduction of a stamp duty holiday, according to the Nationwide Building Society, suggesting the mini property market boom might be over as the end of the tax break approaches.
The UK Nationwide house price index fell 0.3 per cent in January compared with the previous month, the first fall since June and down from a 0.9 per cent expansion in the previous month.
This is a much weaker reading than the 0.3 per cent expansion forecast by economists polled by Reuters.
Compared with the same month last year, house prices were 6.4 per cent higher, a slowdown from the 7.3 per cent annual growth recorded in December.
Robert Gardner, Nationwide’s chief economist, said: “To a large extent, the slowdown probably reflects 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.”
House price growth has accelerated since the government introduced the exemption on the first £500,000 of primary residential property purchases in July.
The property industry has called for an extension of the measure that ends in March, but last month Rishi Sunak, the chancellor, indicated he was disinclined to do so when he reiterated the need to start restoring the public finances.
Jonathan Hopper, chief executive of the real estate consultant Garrington Property Finders, said: “The breathless pace of price rises seen in the latter half of 2020 was always going to be unsustainable. What is likely to endure is the decision made by thousands of people last year that they need more from their home.”
After an initial drop at the start of last year, house prices were also pushed up by people looking for bigger properties as the pandemic forced the population to spend most of their time indoors, including to work remotely.
The chance to move location or type of property contributed to a strong expansion in the housing market that has been in stark contrast with a deep economic downturn.
On Monday figures from the Bank of England showed that mortgage approvals weakened marginally in December from a 13-year high in November. However, there were more mortgage approvals in 2020 than in 2019 despite the unprecedented shrinkage in economic output.
Experts expect house prices to cool further, but not collapse in the short term.
Jeremy Leaf, a north London estate agent and former residential chairman of the Royal Institution of Chartered Surveyors, said that he expected “a softening in prices” as “those likely to miss out on the stamp duty saving due to backlogs tell us they would prefer to compromise on price rather than miss out on the property they have set their hearts on”.
George Franks, co-founder of London-based estate agent Radstock Property, said that “demand should remain relatively strong as it still costs less to own than to rent and the cost of borrowing is still exceptionally low”.
However, a potential rise in unemployment once the government’s furlough scheme ends could result in a sharper slowdown in the property market.
For 2021, Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics said he expected house prices to drop by about 2 per cent.