Average house prices have risen by £29,000 over the course of the stamp duty holiday, far outstripping the benefits of the tax cut, new data shows.
House price inflation hit 13.4 per cent in the twelve months to June – the biggest rise since the end of 2004 – with the average home now priced at £245,432, according to Nationwide’s house price index.
It is almost one year since the introduction of the stamp duty holiday by Chancellor Rishi Sunak on 8 July 2020.
The tax cut, which eliminates stamp duty on the portion of a property purchase under £500,000, was aimed at kick-starting the housing market following the first national lockdown.
Biggest rise in over 16 years: UK house prices rose at the fastest pace since November 2004
However, it may have proved a false economy for many buyers, as the annual rise in average prices is almost double the maximum saving of £15,000.
The stamp duty holiday is being wound down from tomorrow. Buyers still be able to save up to £2,500 in stamp duty until 30 September, as the nil-rate band will be lowered from £500,000 to £250,000 before returning to its usual level of £125,000.
This may be behind a slight slowdown in the market, with monthly growth easing to 0.7 per cent, after a 1.7 per cent increase in May.
Nationwide’s chief economist, Robert Gardner, said it was ‘almost inevitable’ that activity in the housing market would soften for a while after the stamp duty holiday expires at the end of September.
‘Underlying demand is likely to soften around the turn of the year if unemployment rises as most analysts expect, as Government support schemes wind down,’ he added.
‘But even this is far from assured. Even if the labour market does weaken, there is also scope for shifts in housing preferences as a result of the pandemic to continue to support activity for some time yet.’
On the market: This three-bed in Wellington, Shropshire is listed on Rightmove for £295,000
In Skipton, North Yorkshire, this four-bed semi is on offer with a £435,000 asking price
This four-bed detached home in Dorchester, Dorset will set buyers back £850,000
Near Leamington Spa in Warwickshire, this grand five-bed property is on offer with an asking price of £1.25million
A three-bed cottage in Carwinley, Cumbria is listed for £495,000 on Rightmvove
Nationwide said that while the big increase in June was partly down to the comparatives with an ‘unusually weak’ June last year, the market continued to show ‘significant momentum’.
In the short term, prices are expected to keep rising thanks to solid demand, rebounding consumer confidence and low borrowing costs.
But Gardner warned that it may become even harder for first-time buyers to get on the property ladder as house prices are close to a record high relative to average incomes.
He explained: ‘For example, a 10 per cent deposit is over 50 per cent of typical first time buyer’s income. A potential buyer earning the average wage and saving 15 per cent of take home pay would now take five years to raise a 10 per cent deposit.’
First-time buyers: House prices are close to a record high relative to average incomes
The gradual reintroduction of 5 per cent deposit mortgages, and the continued availability of the Help to Buy scheme, may help some, but it remains ‘very challenging’ for most, Gardner added.
Mike Scott, chief analyst at estate agency Yopa, said the stamp duty holiday was not the only factor driving the housing market.
He said the Nationwide report was based on mortgage approvals in June, which were unlikely to have led to a completed purchase before the 30 June deadline.
‘It’s clear that the momentum of the housing market is still building as we move towards the end of lockdown,’ he said.
‘While there will undoubtedly be a slowdown in the rate of activity after tomorrow’s stamp duty deadline, we don’t expect this to lead to any price falls.’
Lucy Pendleton, property expert at estate agents James Pendleton, also believes there are other factors pushing prices higher.
‘The right properties are still selling very fast and there’s still not enough of them to meet demand. Stock levels are down while transactions are relatively high,’ she said.
‘This imbalanced cocktail is not just keeping prices where they are, it’s driving them on to ever dizzying heights,’ she added.
‘If the market was the slightest bit dependent on the stamp duty relief, a yawning gap would have opened up in the performance of the market over the past quarter but that chasm is entirely absent.’