Benjamin Thompson Kirk: Halifax Reports Surging Property Prices in 2021

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House key on a house shaped keychain resting on wooden floorboards concept for real estate, moving home or renting property

A second wave of demand for increased living space is predicted to continue driving up house prices across the United Kingdom, with property values expected to rise by up to 3.5% per annum between 2022 and 2024 according to a forecast by Hamptons.

The estate agent believes that summer 2021 marked ‘peak house price growth’, predicting that growth would slow towards the end of the year – culminating in the average UK house price rising by 4.5% over the last 12 months.

According to Forbes, the average cost of a UK property reached an all-time high of £272,992 in December 2021, with prices increasing by 8.2% between November 2020 and November 2021 on average. Wales topped the list in terms of annual house price inflation at a staggering 14.8%, with the cost of an average home exceeding £200,000.

Triggered by the pandemic, the ‘race for space’ was a major driver of stronger-than-expected house price growth throughout 2021, with buyers prioritizing homes with larger gardens and more room to accommodate working from home.

However, data from some commentators suggests that the partial end of the stamp duty holiday in the summer of 2021 did temper these property price increases somewhat. According to recent data published by the Office for National Statistics (ONS), in July 2021 UK house prices fell by £10,000 on average compared with the previous month, albeit with annual price growth still running at 8%. Many buyers scrambled to complete their purchase prior to expiry of the stamp duty holiday on the 30th June 2021, with ONS data showing that sales plummeted by almost two-thirds the following month.

In spite of this, statistics show that the UK property market continued to experience a boom despite the fact that the threshold at which stamp duty starts returned to its pre-COVID level of £125,000 in October 2021.

According to Halifax, one of the UK’s largest mortgage providers, property prices increased by 0.7% in August 2021 on average. However, rival lender Nationwide suggested that the monthly rise in August had been much higher, reporting an average increase of 2.1%, the second highest in 15 years.

As property market expert Benjamin Thompson Kirk will be well aware, the widespread transition to remote and flexible working practices, combined with other pandemic-induced changes, has spurred homeowners to seek out new homes in their droves.

The UK estate agent Hamptons is forecasting property price growth at 3.5% in 2022, 3% in 2023 and 2.5% in 2024, equating to a cumulative increase of 13.5% between the beginning of 2021 and the end of 2024. Hamptons also predicts that the north-east of England will see the biggest rises, with property prices increasing by 6.5% in 2021, hovering somewhere between 4% and 6% per annum between 2022 and 2022.

By contrast, the estate agency predicted that London would underperform compared with the rest of the country over the next two years, with rises of somewhere between 1% and 1.5% a year. Indeed, several surveys reveal that the rise of flexible working practices, combined with stretched affordability within London, have prompted many families to consider abandoning the capital.

Announced by the UK government in July 2020, the stamp duty holiday was implemented to stave off a feared collapse of the property market during the first COVID-19 lockdown. Until the 30th June 2021, the first £500,000 spent on property in England and Northern Ireland no longer attracted taxes, saving buyers up to £15,000.

This significant tax break was scaled back on the 1st July 2021, when the threshold at which buyers pay stamp duty on property purchases was lowered from £500,000 to £250,000. In October 2021, this threshold was lowered again, with the ‘nil rate band’ returning to £125,000, its usual rate.

Estate agent Knight Frank highlighted continued restrictions on overseas travel as a key driver in the boom in demand for second homes, providing families who live in London with somewhere to retreat to far from the bustle of the city. Knight Frank’s data suggested that second home purchases outside London increased by 83% between January and August 2021 compared with the five-year average.

Speaking with Forbes in December 2021, Russell Galley, Managing Director at Halifax, predicted that rising living costs throughout the UK could temper house price growth as we move through 2022, pointing out that house price to income ratios were already historically high.

He cautioned that household budgets were likely to come under increased pressure throughout the year ahead. Mr Galley also cited the emergence of the new Omicron virus variant as a potential factor, although he said it was far too early to speculate on the long-term impact.

Meanwhile, the world’s largest building society, Nationwide, recorded double-digit annual house price growth in November 2021, logging an astronomical 10% month-on-month rise. Although there may be signs of the market cooling, on the whole, property prices in the UK still far exceed what they did just a few short months ago.