House prices reach record highs, but can the ‘mini-boom’ be maintained?

Linda J. Dodson

House prices have risen to their highest levels on record, with pent-up demand following lockdown and the Chancellor’s stamp duty holiday causing a mini-boom on the market in July. 

Average house prices grew 1.6pc from the month before, according to Halifax’s price index, up to fresh highs of £241,604 – a jump of almost £4,000. 

It reverses the dip in prices seen from February to June, as social distancing measures followed by a market lockdown prevented viewings and transactions.

House prices in July were 3.8pc higher than the same time last year, but concerns remain of a downturn to come. 

Russell Galley of Halifax said pent up demand, new tax breaks and low levels of housing stock had helped to drive “a surprising spike post lockdown”. 

“However, looking further ahead, there is still a great deal of uncertainty around the lasting impact of the pandemic. As government support measures come to an end, the resulting impact on the macroeconomic environment and in turn the housing market will start to become more apparent,” he said. 

Despite the rise in prices recorded by the lender, official figures show transactions in the second quarter of the year were still 47pc lower than in the first three months of 2020.

Mortgage approvals are down too, as banks make it harder for first-time buyers to get on the ladder and reign in spending. Just 65,000 mortgages were approved between May and the end of July, down almost 70pc compared to the start of the year and down 67pc from the same period in 2019.

Millions are still making use of mortgage holidays, while the Government is subsidising the wages of close to 10 million people on furlough leave. The Office for Budget Responsibility, the official forecaster, has said unemployment could exceed 13pc come 2021. Experts fear this could lead to a market of forced sellers driving prices downward.

Andrew Montlake of mortgage brokers Coreco said the increase was being driven by second-home owners taking advantage of the £15,000 stamp duty holiday.

“The Government has a phenomenal task ahead to keep people in jobs, which will clearly determine the direction of house prices in the short to medium-term.

“The property market is a peculiar beast right now. Landlords are making hay while the stamp duty sun shines, and many people are also looking to take advantage of the stamp duty holiday to buy second homes. For first time buyers, the picture is far less rosy. The stamp duty holiday has become academic as the people who it was intended for are least likely to be able to make use of it as borrowing at higher loan-to-values is increasingly difficult,” he said.

Just looking at the headline statistics belies the true state of the market and the supporting industry, Mr Montlake added.  

Meanwhile property website Rightmove announced it had taken a massive hit in earnings, with advertising revenues falling 34pc in the first half of the year.

Operating profits fell from almost £110m last year to less than £62m. It handed a 75pc discount to its high-street estate agent clients during lockdown, when the property market was at a standstill.

Jamie Johnson of property firm FJP Investment said: “The big question now is whether this initial burst in activity can be maintained over the next few months. Will house prices continue to grow; or will the momentum fizzle out?”

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