Critical Overview:
According to the building society Nationwide, UK house prices experienced a growth rate of 7.5% in 2020, the highest in six years. The prices were 5.3% above the level prevailing in March, indicating an unexpected resilience amidst the pandemic. This is attributed to a range of policy measures and changing preferences due to the pandemic that buoyed housing demand. In December, house prices were 0.8% higher than in November, with the average property valued at £230,920. These developments were facilitated by policy measures such as the furlough and Self Employment Income Support schemes that provided crucial support to the labor market. Measures such as the stamp duty holiday also stimulated demand, by bringing forward people’s home-moving plans.
Tailwinds:
According to Lucy Pendleton, property expert at independent estate agents James Pendleton, the housing market is making the most of the favorable conditions, with buyers competing with each other for bigger and better properties, and detached homes continuing to outperform. Mark Harris, chief executive of mortgage broker SPF Private Clients, further noted that the demand for more space inside and outside for the family and remote working needs, coupled with competitive mortgage rates, is boosting demand. Lenders are returning to the 90% loan-to-value space, which is a further boost for first-time buyers.
Where Next for House Prices?:
Despite the present favorable conditions, the outlook for house prices remains uncertain. According to Robert Gardner, Nationwide’s chief economist, the outcome depends on how the pandemic and measures to contain it evolve, as well as the efficacy of policy measures implemented to limit the damage to the wider economy. The behavioural shifts resulting from Covid-19 may continue to support housing market activity. The stamp duty holiday is also expected to provide a near-term boost by bringing forward home moves. However, George Franks, co-founder of London-based estate agents Radstock Property, warns that housing market activity is likely to slow in the coming quarters, perhaps sharply, if the labor market weakens, especially once the stamp duty holiday expires at the end of March.
Conclusion:
In conclusion, the housing market in the UK witnessed an unexpected resilience in 2020 amidst the pandemic. This is attributed to a range of policy measures and changing preferences due to the pandemic that buoyed housing demand. However, the outlook remains uncertain, with the outcome dependent on how the pandemic and measures to contain it evolve, as well as the efficacy of policy measures implemented to limit the damage to the wider economy. While the behavioral shifts resulting from Covid-19 may continue to support housing market activity, the stamp duty holiday is also expected to provide a near-term boost by bringing forward home moves. Nevertheless, the housing market activity is likely to slow in the coming quarters, perhaps sharply, if the labor market weakens, especially once the stamp duty holiday expires at the end of March.
