House prices continued to surge in September

The latest ONS data suggests that the end of the Stamp Duty holiday has done little to deter home movers in the race for space.

In England the September data shows, on average, house prices have risen by 2.9% since August 2021. The annual price rise of 11.5% takes the average property value to £287,895.

The regional data for England indicates that:

• the North West experienced the greatest monthly rise with a movement of 5.3%
• London saw the lowest monthly price growth, with a fall of -2.9%
• the North West experienced the greatest annual price rise, up by 16.8%
• London saw the lowest annual price growth, with a rise of 2.8%

Tom Bill, head of UK residential research at Knight Frank, said: “The housing market has largely shrugged off the end of the stamp duty holiday and price growth continues to apparently defy economic gravity. Stronger-than-normal demand has been boosted by frustrated buyers who were unable to move during the stamp duty holiday and others who have waited for calmer conditions after its conclusion. Lower-than-normal supply will only pick up meaningfully next spring given how seasonal the UK housing market is. This supply/demand imbalance will support prices in the meantime.

“Ultra-low borrowing costs also have also underpinned demand. Longer term, there will need to be a readjustment as mortgage rates normalise, a process that has been delayed by the pandemic. Interest rates were 0.75% in early 2020 before Covid struck and we wouldn’t expect any meaningful impact on prices or demand while they remain below that level. However, what’s different between now and early 2020 is the higher cost of living, which may cause demand to start fraying around the edges depending on how elastic the definition of “transitory” becomes in relation to inflation.”

“Over 3.5 million first-time buyer mortgages have been issued since the base rate dropped to 0.5% in March 2009. That is a large group of homeowners who don’t know what it’s like when interest payments rise meaningfully.”

UK house prices increased by 11.8% in the year to September 2021, up from 10.2% in August 2021. On a non-seasonally adjusted basis, average house prices in the UK increased by 2.5% between August and September 2021, compared with an increase of 1.1% during the same period a year earlier (August and September 2020).

The UK Property Transactions Statistics showed that in September 2021, on a seasonally adjusted basis, the estimated number of transactions of residential properties with a value of £40,000 or greater was 160,950. This is 68.4% higher than a year ago. Between August and September 2021, UK transactions increased by 67.5% on a seasonally adjusted basis, following a record level of transaction numbers in June 2021, and the subsequent reduction which followed in July.

House price growth was strongest in the North West where prices increased by 16.8% in the year to September 2021. The lowest annual growth was in London, where prices increased by 2.8% in the year to September 2021.

Karen Noye, mortgage expert at Quilter, said: “The end of the full stamp duty holiday was originally hailed as the moment that we would start to see the astronomical increase in house prices start to slow, but on a non-seasonally adjusted basis average house prices in the UK increased by 2.5% between August and September 2021, compared with an increase of 1.1% during the same period a year earlier.

“Clearly other factors are at work in the market and government intervention during the pandemic is not the only force pushing prices up. While September represented the last month for people to take advantage of the tapered stamp duty holiday there continues to be strong demand even after the stamp duty holiday was totally rescinded. The race for space is helping areas previously deemed too far away from city centres become desirable as a boom in hybrid working makes longer commutes more palatable for many. The UK Property Transactions Statistics showed that in September 2021, the estimated number of transactions of residential properties was a whopping 68.4% higher than a year ago.

“However, today’s headlines around rising inflation could take the wind out the sails of this intense period of house price growth. A hike in interest rates to combat rising inflation has been hotly touted for weeks and many were surprised that rates haven’t increased already. It is now inevitable that rates will go up in the near future and when they do people may start to think twice about upping sticks. Those on tracker mortgages may be in for a shock as they will see their monthly payments increase and while rate increases will remain modest in the short term it could be enough to put off a slew of first time buyers who are already financially overstretching themselves due to the increase in property prices.

“The increase in interest rates and their knock-on impact on mortgages does have the potential to slow down the rampant property market. But with a dearth of supply and still strong levels of demand its likely to be a slowdown in house price growth rather than a big fall.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, added: “On the one hand, the ONS property index is the most comprehensive of all the surveys but on the other, it is a little dated. Nevertheless, it provides an excellent snapshot of housing market activity at the time as most buyers struggled to take advantage of the reducing stamp duty concessions.

“Since then the market has calmed and price growth has softened as so many brought forward moving decisions. Prospects remain good, however, as buyers and sellers defy worries about rapidly soaring inflation and rising interest rates.”