The housing market had a busy start to the year as buyers raced to beat changes to stamp duty thresholds at the end of March, but the outlook is more uncertain now that property purchase costs are higher.
Official figures from HM Land Registry, published on 21 May, show house prices rose by 6.4% annually in March, up from 5.4% the month before. This was the fastest rate of annual growth in over two years as buyers raced to beat the stamp duty deadline.
On a monthly basis, prices rose by 1.1%. This takes the average UK property to £271,000, around £16,000 higher than a year ago.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
While Land Registry data is the most authoritative source, it comes with a two-month time lag, meaning it doesn’t give a sense of how stamp duty changes have impacted the housing market following the threshold drop.
First-time buyers now begin paying the controversial property tax on homes worth more than £300,000, down from £425,000 previously. Meanwhile, home movers have seen the tax-free threshold drop from £250,000 to £125,000.
Have stamp duty changes put the brakes on the housing market?
More current data from other house price indices paints a mixed picture.
Nationwide found that annual house price growth slowed from 3.9% to 3.4% in April, while prices fell by 0.6% on a monthly basis.
The bank’s chief economist Robert Gardner expects the market to remain “a little soft in the coming months, following the pattern typically observed after the end of stamp duty holidays”.
April’s sentiment survey from the Royal Institution of Chartered Surveyors also painted a weaker picture, suggesting house prices were “more or less flat”. New measures of buyer demand and agreed sales both weakened.
Halifax data, on the other hand, shows greater resilience. House prices rose by 3.2% annually in April, the mortgage lender reported, up from 2.9% the month before. On a monthly basis, prices rose by 0.3%.
“While the market has cooled slightly since [the stamp duty] rush, buyer activity remains strong in comparison to recent years,” said Amanda Bryden, head of mortgages at the bank.
“Mortgage rates have continued to fall, with most lenders now offering rates below 4%. Coupled with positive earnings growth that has outpaced broader inflation, these factors have helped to steadily improve affordability for many buyers.”
Regional house price variations
Naturally, there are regional variations.
The latest report from HM Land Registry suggests prices are growing at the fastest rate in Northern Ireland (9.5% annually), followed by England (6.7%), Scotland (4.6%) and Wales (3.6%).
Of the English regions, Yorkshire and the Humber is experiencing the fastest growth (9.5%).
London saw the lowest level of growth at 0.8%. Prices in London are particularly high, with the average house now costing over £552,000. This suggests affordability limits have become stretched.
Using the “house prices in your area” report from the Office for National Statistics can help you understand how prices have changed in your borough or local authority area.
Different property types are also seeing significant variations in price. Separate data from Zoopla shows the gap between the value of the average house and the average flat widened to a 30-year high earlier this year. As of January, a typical house was 67% more expensive than a flat.
“The search for space over the pandemic boosted demand for houses, while concerns over the running costs of flats, such as service charges and ground rents, has acted as a drag on flat prices. Building safety is another factor impacting demand for some recently-built flats,” said Richard Donnell, executive director at the property listing site.
Are property asking prices going up?
Asking prices are a useful barometer for market sentiment as it currently stands. These snapshots tend to be published only a few weeks after the data was recorded. The drawback is that asking prices don’t necessarily reflect the final sold price.
Rightmove data shows asking prices increased by 0.6% on a monthly basis in the first few weeks of May. This is the smallest increase for this time of year since 2016, based on the property site’s records.
As this would suggest, the current environment is more conducive to buyers than sellers. The number of homes for sale is currently at a 10-year high, meaning buyers have plenty of choice and can shop around for their dream home.
“Sellers need to be aware of the level of competition they’re facing for the attention of buyers, and the prices that are being advertised in their location,” said Colleen Babcock, property expert at the website.
“In the current market, buyers may well have several similar homes to choose from in their area, and a home which appears over-priced compared to the competition may not get a second look.”
Will house prices rise in 2025?
Although stamp duty changes have acted as a headwind in recent weeks, many experts are cautiously optimistic about the outlook going forward.
Nationwide believes that underlying conditions for potential homebuyers in the UK “remain supportive”, and expects activity to pick up over the summer.
“Unemployment remains low, earnings are rising at a healthy pace in real terms (i.e. after accounting for inflation), household balance sheets are strong, and borrowing costs are likely to moderate a little if Bank Rate is lowered further in the coming quarters,” Gardner said.
Bryden agrees that the market “continues to show resilience, despite a subdued economic environment and risks from geopolitical developments”. She expects to see a trend of “modest price growth” this year.
Indeed, market activity may have slowed, but it certainly hasn’t come to a standstill. Rightmove data shows the number of sales agreed in April was 5% higher than a year ago, despite buyer demand dipping by 4%.
Most experts agree with Bryden’s suggestion that house prices will end 2025 in positive territory. Zoopla expects 2.5% growth this year, Knight Frank recently upgraded its forecast from 2.5% to 3.5%, and Savills is predicting 4%.
Regional variations are likely, with prices forecast to rise more rapidly in the north than the south. Savills expects growth of 5% in the North West, the North East, Scotland, and Yorkshire and the Humber. Prices in the East of England and the South West are forecast to increase by 2.5%.
-
Shein shifts IPO focus to Hong KongThe development piles fresh pressure on London’s beleaguered stock market, which many had hoped would be boosted by Shein’s IPO
-
Scientists turn lead into gold – could it wreck the yellow metal's price?Medieval alchemists have been vindicated after scientists turned lead into gold, but the results aren’t going to crash the gold price any time soon
