According to the largest building society in the UK, house prices have grown at the fastest rate month on month since September 2016. Are house prices increasing? Yes, and quickly.
The average UK house price raised was 5% higher in September compared to the September of 2019.
Many factors have led to this increase, not least of which the stamp duty freeze which affords home buyers significant tax discounts in purchasing their home.
Since the ‘pay to play’ is less more and more people are entering the market to snap-up houses. However, whilst it is cheaper to buy a home lenders have tightened the criteria for mortgages making it less accessible to first time buyers or those with lower deposits.
Within the month go September itself, the average house price increased by 0.9%. You can see from the below graph by the Guardian how much house prices have increased over the last 10 years.
So, why are house prices continuing to increase?
There is a lot of speculation as to why the housing market is increasing the way that it is and how that will change over time. Certainly, one of the factors is the ‘pent-up demand’ from the COVID-19 moving restrictions. The cultural shift in working from home has led to an increase in people leaving city centres to purchase more space further afield. The stamp duty freeze has no doubt added significant fuel in stimulating the housing market.
We know that the housing marker is in a period of rapid growth at the moment, but what will happen next year? Are we heading for a housing market crash?
Unsurprisingly, economists are in debate about this. One of the factors we expect to be supporting the housing market is the Government’s support for job retention.
Once this support runs out there is concern that unemployment rates will continue to rise.
The general theory of how it works goes along the lines of: People losing their jobs means more defaults on mortgages, which leads to more repossessions and more houses being sold as lenders try to get their money back. If that happens at enough volume it will become a buyers market as the supply for houses outstrips the demand. And this of course will then reduce the price of houses.
This may be a minor factor, a major one, to not an issue at all. Some predict that unemployment may raise to over 13% in Q1 of 2021.
At the end of the stamp duty holiday the UK Government may extend the releif indefinitely. There are mounting economic arguments which say that a reduced stamp duty fee is better overall for the economy.
Whether this is a ‘mini-boom’ or not, any kind of dip is not guaranteed. We may well see a period of fast growth transition to a slower, steadier growth.