UK house price data: what is happening in the market and why is the data relevant?

Thank you Financial Times, Forbes and BBC News for sharing my comments on the latest house price data from HPI.

Full commentary from me below on why the data is relevant, the new North-South divide, the disproportionate impact of the temporary SDLT reduction and the impact of institutional investment in the Private Rental Sector in 2021:

Despite being 2 months old, HPI data is interesting and relevant because it shows a more complete picture than other house price indices.

This is important because, as we have seen in 2020, news headlines around house price growth does not just reflect buying decisions. It also influences them, by making potential buyers hurry to avoid ‘missing out’. 

The latest UK HPI shows growth of 8.5% in the year to December 2020. This is significant, in particular compared to many other more volatile or low return assets. House prices were led by the North West, which grew by 11.2%, whereas London house prices grew the lowest by just 3.5%. Within this, detached homes grew the most, by 10%, followed closely by terraced and then semi-detached properties.

There’s been four major drivers of overall house price rises in 2020:

• the temporary Stamp Duty Land Tax reduction;
• cheap debt as a result of very low interest rates, which give buyers a ‘discount’;
• the release of pent up supply and demand and desire to improve surroundings amongst existing homeowners;
• the ‘flight to safety’, since in times of uncertainty, people want to keep their money in a stable asset with low volatility.

The temporary SDLT reduction has had a more than proportionate impact on prices, because buyers who use mortgages can take debt out on the property price, but they cannot use finance to fund transaction costs.Looking to the future, when (assuming) the temporary SDLT reduction ends, we’re likely to see a slowdown in house price rises.

Challenging economic conditions make potential home buyers less willing and able to buy. However, at the same time we are seeing significant growth in appetite from institutional investors such as major global pension funds.

For investors of any scale, the good news is that throughout market cycles and changes, house prices in the UK have a track record of remaining stable, relative to other property markets internationally and other investments such as shares.

In challenging times, house prices will rise more slowly rather than falling significantly, in particular in locations which have good job prospects and amenities. Ultimately, we all need a roof over our heads and supply of new homes is limited.

Forbes https://www.forbes.com/sites/palashghosh/2021/02/17/lockdown-demand-drives-average-uk-house-prices-to-record-levels/?sh=4e8e7e2526d6

Financial Times: https://www.ft.com/content/9cad5402-c8cb-3e7a-92e8-fdc9fc797488

BBC: https://www.google.co.uk/amp/s/www.bbc.co.uk/news/amp/business-56095357

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