According to Nationwide, the UK’s largest building society, house prices fell in January for the first time since June as demand eased ahead of the ending of the stamp duty tax holiday on 31 March.
The average price of a house fell by 0.3pc to £229,748 between December and January, Nationwide has reported. For the first time since June, the annual growth rate also slowed, from 7.3pc to 6.4pc. The holiday, which means there is no tax to pay on property purchases up to £500,000 in England and Northern Ireland, has boosted the housing market recently.
Chancellor Rishi Sunak announced the tax holiday in July to energise the market after it ground to a halt during the first coronavirus lockdown, when all bar essential house moves and viewings were banned, and estate agents were forced to close.
If unemployment continues to rise and Mr Sunak does not extend the stamp duty holiday, Nationwide warned the housing market could slow ‘sharply’ in the coming months.
MPs call for extension of tax holiday
Robert Gardner, Nationwide chief economist, commented that to a large degree, the slowdown in January most likely reflected a reduction in demand in advance of the end of the stamp duty holiday. And this motivated many people considering a house move to bring forward their purchase.
Although the stamp duty holiday is not due to end until the end of March, he added, activity would be expected to fall well before then, given that the purchase process usually takes several months.
As MPs called for an extension during a virtual parliamentary debate on Monday, Mr Sunak has come under increasing pressure to extend the tax holiday to avoid a collapse in house sales.
House prices expected to end year flat
Tom Bill, head of UK residential research at estate agent Knight Frank, urged the Government to phase out the tax holiday gradually. The sensible option, he said, would be to taper the holiday to avoid a cliff-edge scenario for the housing market or the wider economy, especially considering how important the mobility of labour will be in the coming months.
He expects house prices to end the year flat as demand steadies and becomes more seasonal in the second half of this year.
The market has been buoyant, he added, despite the economic downturn caused by the Covid-19 pandemic, partly because people’s housing needs have changed. Amid a shift to working from home and a subsequent decline in commuting, many have moved out of big cities to less densely populated areas and looked for larger homes with gardens.
But Mr Gardner pointed out that the total number of mortgage approvals for house purchases in 2020 exceeded the number approved in 2019, with house price growth ending 2020 at a six-year high. This despite the fact the economy was around 10pc smaller than at the start of 2020, and the unemployment rate, at 5pc, approximately one percentage point higher.
Large drop in new instructions to sell
Meanwhile, Halifax reports UK house prices fell by 0.3pc month on month in January to an average of £252,000, the largest drop since a 0.6pc decline last April at the beginning of the crisis.
But the building society maintains that despite the January fall, which has resulted in the price of an average property being pushed to its lowest level since October, house prices are still around £13,000 higher than a year ago.
The lender said the annual rate of house price inflation, at 5.4pc, has fallen to its lowest level since last August. The rate reached as high as 7.6pc in November.
Russell Galley, MD of Halifax, commented that industry figures for agreed sales remain well above pre-pandemic levels, although new instructions to sell have decreased markedly. Whereas the total stock held by estate agents has increased to its highest level since before the EU referendum in 2016.