UK house prices surge to new high
Tax cut leads to biggest price increases in 16 years, but activity likely to weaken
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HOUSE prices in the United Kingdom rose by the most in 16 years in August, after a tax cut stoked post-lockdown demand, said the Nationwide Building Society.
Values jumped 2 per cent from a month earlier to an average of £224,123 (S$407,321), the mortgage lender said on Wednesday. On an annual basis, prices rose 3.7 per cent.
"House prices have now reversed the losses recorded in May and June and are at a new, all-time high," said Robert Gardner, Nationwide's chief economist.
"The stamp-duty holiday will serve to bring some activity forward," he added.
The housing market came to a standstill during the novel coronavirus lockdown. To get it going again, Chancellor of the Exchequer Rishi Sunak in July temporarily waived stamp duty on the first £500,000 of any property purchase.
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The tax cut is due to last until March 31 next year.
The question now is how long the boost can be sustained. Government support measures will start to run out next month, and unemployment is expected to rise.
Nationwide said activity could weaken in the next few quarters, and many economists agree.
"For now, an unprecedented combination of repayment holidays as well as a property-tax holiday and monetary stimulus are supporting house prices," said Bloomberg Economics' Niraj Shah.
"But that buffer will be tested later this year, as the government's fiscal support is unwound and mortgage repayment holidays expire," he added.
The housing market in England reopened in May, with Wales, Scotland and Northern Ireland following suit a month later.
In a sign that momentum is set to be maintained in the short term, Bank of England figures on Tuesday showed that mortgage approvals surged for a second month in July.
Nationwide's Mr Gardner said social distancing is not having the "chilling effect" that had been feared.
"Pent-up demand is coming through, where decisions taken to move before lockdown are progressing," he said.
"Behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown," he added. BLOOMBERG
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