House prices: from boom to even bigger boom

UK house prices have risen to new to record highs, says Nicole Garcia Merida. Demand continues to outpace supply, but continued low interest rates, the return of 95% mortgages and the stamp-duty holiday extension all play their part.

Property for sale signs
The property market shows no sign of slowing
(Image credit: © Jason Alden/Bloomberg via Getty Images)

The increase in house prices we’ve seen since the start of the pandemic can’t really be called a “mini-boom” any longer, with average property prices rising to record highs and demand slowly but surely outpacing supply.

As of March 2021 the average property in the UK was worth £254,606, up 1% from the £251,856 high of February according to the Halifax house price index, and up 6.5% from a year ago, or £15,430 more.

“Few could have predicted quite how well the housing market would ride out the impact of the pandemic so far,” says Russell Galley, managing director at Halifax. “Let alone post growth of more than £1,000 per month on average.”

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Chart of UK house price indices

(Image credit: Chart of UK house price indices)

Indeed, growth has been such that the return to record highs “can’t really be called a mini-boom at all any more”, says Nicky Stevenson, managing director at estate agent group Fine & Country. “Hordes of buyers chasing a relatively small pool of homes” are behind the price increase, as dwindling supply coupled with the stamp duty tax holiday prompts people to offer more, spend more, and encourage sellers to ask for more. “Demand is totally eclipsing supply and that’s forcing buyers to chase prices,” adds Stevenson.

An increase in supply is no guarantee prices will regulate themselves in the coming months, either. Halifax’s house price index revealed mortgage approvals fell in February by 9.9%; that figure is still 19.5% higher than it was in February 2020. The government’s 95% mortgage guarantee scheme, which we covered here, coupled with low interest rates are set to boost house prices further as more people are able to buy homes.

“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,” says Rhys Schofield, managing director at Peak Mortgages & Protection. This “bottleneck” is the driving force behind the increase in prices, according to Schofield.

Meanwhile, says Schofield, the lack of stock could be because those moving home have less of an incentive to do so due to the stamp duty “cliff edge”. This translates to fewer starter homes becoming available. “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.”

The prospect of summer and outdoor space in which to entertain, especially given ongoing restrictions and the uncertainty around when they’ll be lifted coupled with the concern of them coming back, is pushing people to move in droves.

The March 2021 RICS UK residential survey showed sales market activity picked up sharply throughout the month, with 42% of surveyors citing an increase in new buyer enquiries for March. That’s the strongest return since September of last year. Agreed sales were also up, with 50% of contributors reporting an increase – a “sharp acceleration” from last month when only 7% did, and the strongest reading since last August.

Nicole García Mérida

Nic studied for a BA in journalism at Cardiff University, and has an MA in magazine journalism from City University. She joined MoneyWeek in 2019.