What is driving booming UK house prices? – The main reason for the price rise is the introduction of a range of measures by the government that has made it easier to buy a new home. These include the extension of the stamp duty holiday and the introduction of a government-backed 95% mortgage scheme to help potential home buyers.
The stamp duty holiday was first introduced in July 2020 by Chancellor Rishi Sunak to give the housing market a boost following its shutdown during the first nationwide coronavirus lockdown in March.
Support for those at risk of losing their jobs, such as the extension of the furlough scheme, and also the better-than-expected growth of the economy and the successful coronavirus vaccine rollout have also contributed to increased buyer confidence and rising house prices.
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In the past year millions of workers have spent the majority of time at home and this has been another reason for the rise in house prices. The future of office work is still not confirmed and therefore many people are now looking for larger homes out of city centres, and properties with more outdoor space and room for an at-home office.
For those workers who have kept their jobs during the pandemic, and who haven’t been spending as they usually would, the Bank of England predicts that around £100bn has been saved, fuelling the housing market further.
“The Stamp Duty holiday and other comprehensive government support measures have enabled the property market to stare down the pandemic, against all the odds,” says George Franks, co-founder of London estate agency Radstock Property. “We all know that a giant fiscal squeeze and rising unemployment are on the horizon but for now the success of the vaccination roll-out, new living requirements and exceptionally low mortgage rates have lit up the market. Even if the property market does start to cool down later in the year, an extreme lack of stock will prevent a material fall in values. In London, rising unemployment will potentially be less of an issue than in the rest of the country, as the capital’s jobs market is an ecosystem in itself. Overall, we continue to expect average UK house prices in 2021 to rise by 2% to 4% depending on property type and location.”
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What is likely to happen next?
Demand for new houses is the reason for UK house prices rising. Halifax says this trend is likely to continue for the next few months, although it is cautiously optimistic, with warnings over what might happen when the government-backed schemes come to an end and the full economic consequences of the pandemic are felt.
“Right now, there is a huge bottleneck in the property market, with large numbers of prospective buyers and not enough new stock, and this is really driving up house prices,” notes Rhys Schofield, managing director of Peak Mortgages & Protection. “The sheer volume of prospective buyers is partly due to the return of first time buyers, as securing a higher loan-to-value mortgage has got a lot easier over the past month or two. With the Stamp Duty cliff edge looming, the lack of stock may be because next time buyers have less of an incentive to move, which frees up starter homes. House builders also shifted the vast majority of their stock at the end of last year and have limited units available within the next six months. We’ve even had a client reserve a property through one of the bigger national housebuilders, which won’t actually be built until early 2022.”
By Stuart Fieldhouse
Source: The Armchair Trader
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