House prices decreased by £9,000 in July, according to the Office for National Statistics (ONS), following the end of the stamp duty holiday in June.
The findings indicate that the market could finally be cooling after months of inflated prices, but experts say there is enough momentum to keep prices elevated for the rest of the year.
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The average house cost £256,000 in July, and while this was a 3.4% decline since June, prices are £19,000 higher than a year earlier, the ONS says.
Sarah Coles, from financial services company Hargreaves Lansdown, said: “This was always going to happen to come extent after the distorting effect of a tax break.
"However, there are no signs of imminent price falls, because the race for space, rock bottom mortgage rates, and the welcome return of first-time buyers are continuing to breathe life into the market.”
If you're a first-time buyer or looking to buy before renovating a house, here's what to expect with house prices throughout the second half of 2021.
Will House Prices Keep Rising?
House prices have reached record highs this year, as reported in many house price indexes.
The stamp duty holiday in particular has been considered a key factor. June was the busiest month for mortgage completions since 2008, according to Halifax, as thousands of homebuyers rushed to complete their sales in time to benefit from the stamp duty tax break.
But while many expected the market to cool once the stamp duty holiday ended in June, Halifax's house price index for August revealed average house prices reached a new record high of £262,954 in August. This was an increase of 0.7% (or £1,789) on July, topping the previous peak of £261,642 in May.
And Nationwide reported that annual house price growth rose 11% in August, from 10.5% in July, so the housing bubble might not yet be ready to burst. House prices are now around 13% higher than when the pandemic began.
Significantly, Halifax also revealed that annual house price inflation dropped to 7.1% in August, a five-month low and down from 7.6% in July, which suggests that prices may yet start to cool.
Ross Counsell, chartered surveyor and director at GoodMove, believes the slow down in inflation could be noteworthy. "This does predict that house prices should start to become more attainable as inflation continue to decrease," he said.
"These stats should hopefully signal the start of the property market easing over the next few months, so for anyone looking to buy a property this year, I'd advise to hang fire until autumn/winter if you can."
The Stamp Duty Holiday Has Had a Major Impact
The stamp duty holiday exempted tax on the first £500,000 of the purchase price between July 2020 and June 2021, and has had a remarkable impact on house prices.
Zoopla said in its July house price index that it expected prices to edge upwards to 6% in the coming months because of the impact of the tax break, before eventually easing back to 4-5%.
Moreover, the stamp duty holiday has led to shortage in supply of properties on the market, with the total stock of homes available to buy running 24% below average levels last year.
A tapering effect began on 1 July which will keep exemption at double its standard level (£250,000) until the end of September. This will then drop to £125,000 from October, which is also when the furlough scheme ends.
However, commenting on Halifax's August index, managing director Russell Galley said that "much of the impact from the stamp duty holiday has now left the market", therefore any further price rises are unlikely to be connected to the tax break.
Our Requirements Have Changed
The pandemic has also been a key driver of house prices, and spending more time indoors has changed the requirements of those looking to buy a home.
Two- and three-bedroom semi-detached houses have been snapped up the quickest this year, Rightmove says, with many families searching for more spacious homes, following the shift to working from home.
Nick Barnes, head of research at estate agency chain Chestertons, says: “We expect activity to pick up as there is still substantial unsatisfied demand for spacious homes, mortgage offerings remain attractive and buyers are keen to get their lives back on track post-lockdown.”
The 'race for space' continues to drive demand, as illustrated in Halifax's house price index for August. Galley says that the demand for more space amid greater home working has been a prominent driver of buyer demand over the past two months.
And a Nationwide study from earlier this year revealed that of those moving or considering a move, around a third (33%) are looking to move to a different area, while nearly 30% are doing so to access a garden or outdoor space more easily.
Greater Demand for Rural Locations
The pandemic has also increased our desire for rural living, according to a Royal London survey earlier this year, with many in major cities packing up their bags for the country.
When home movers were asked which areas they wanted to move to, 57% of Belfast movers said they wanted to move into a rural area, followed by 53% in Cardiff, 46% in London, 45% in Manchester and 42% in Liverpool.
“Unsurprisingly, space is the most desirable feature for home movers who want more room both indoors and outdoors," said Mona Patel, consumer spokesperson at Royal London.
"While cities have always been popular home buying locations, the pandemic has seen a shift in attitude as our research shows that there is a greater demand for rural locations.”
Anthony Codling, an independent housing analyst, adds: “Large numbers continue to look for more space to facilitate working from home and countless others are looking for additional homes to accommodate the emerging hybrid working from home model of two to three days in the urban office and two to three days in the rural or coastal idyll.
"Meanwhile, the number of homes for sale is not meeting demand and the outlook for prices is up not down.”
Jack is News Editor for Homebuilding & Renovating, and strives to break the most relevant and beneficial stories for self builders, extenders and renovators, including the latest news on the construction materials shortage and planning reforms. Having bought his first home in 2013, he and his wife have renovated almost every room and recently finished a garden renovation.
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