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.

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.” 

Chart of UK house price indices

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. 

Recommended

What happened to Credit Suisse?
Economy

What happened to Credit Suisse?

UBS acquired Credit Suisse at £2.65bn on Sunday afternoon – significantly below its closing value on Friday, which was around £7bn. We take a look at …
20 Mar 2023
Can I avoid IHT by stuffing all my money into a pension?
Personal finance

Can I avoid IHT by stuffing all my money into a pension?

The ditching of the lifetime allowance could enable millions of pension savers to avoid inheritance tax. We explain how.
20 Mar 2023
Profit from the rise of shareholder activism in Japan’s small companies
Share tips

Profit from the rise of shareholder activism in Japan’s small companies

A professional investor tells us where he’d put his money. Daniel Lee, head ofJapan Research, AVI Japan Opportunity Trust, highlights three promising …
20 Mar 2023
When will interest rates go up?
UK Economy

When will interest rates go up?

The Bank of England has many things to consider ahead of its decision later this week.
20 Mar 2023

Most Popular

Government plans could see NS&I boost interest rates
Savings

Government plans could see NS&I boost interest rates

The government-backed bank has a new funding target, which could prompt it to boost the rates on its Premium Bonds, ISAs and bonds.
16 Mar 2023
Share tips of the week – 17 March
Investments

Share tips of the week – 17 March

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages
10 Mar 2023
How to make your child a tax-free millionaire by age 37
Investments

How to make your child a tax-free millionaire by age 37

Exclusive research for MoneyWeek reveals how funding an ISA and a pension for your child until age 18 could build up a seven-figure sum by the time th…
14 Mar 2023