What's driving double digit price growth

Welcome to our latest residential research update where we discuss the latest trends and data shaping the UK’s housing market. This week, we examine house price growth, the end of the stamp duty holiday in England and Northern Ireland and the continued imbalance between supply and demand.

Market statistics remain strong

• The sharp price appreciation in the past two to three months has caused the Halifax and the Nationwide to report increased levels of house price growth in the year to the end of May. While the Halifax is reporting price growth of 9.5%, the Nationwide puts it a little higher at 10.9%.
• At the same time the Bank of England has reported a continuation of robust mortgage approval activity in April. Levels were 4% higher than in March and 33% above normal market conditions.
• These figures, partially at least, reflect a mix of positive consumer sentiment fueled by a continued strong rebound in the economy and low interest rates.
• Today the Office for National Statistics reported that economic output rose by a further 2.3% in April, following growth of 2.1% in March; the fastest monthly growth since July last year.
• Meanwhile, last week the Bank of England reported that the average interest rate for a new mortgage stood at 1.88% in April, while that for all outstanding mortgages hit a new low of 2.07%.

The haves and have nots – why mortgage affordability hasn’t curtailed price growth

• The Bank of England also puts the current average cost of a 2-year fixed-rate mortgage for those with a 60% loan-to-value borrowing requirement at just 1.20%.
• That means the availability of cheap mortgage debt continues to favour those with plenty of existing housing wealth.
• This comes at a time when data from UK Finance suggests that the market has been increasingly driven by more affluent buyers with plenty of equity behind them.
• As a result, those active in the market are yet to hit up against the mortgage affordability constraints, that might otherwise have been expected to curtail price growth (but which may yet come into play as and as the market ‘normalises’).

And what of stamp duty holidays?

• That raises the question of how much the various stamp duty holidays have affected the market and what happens as they are withdrawn.
• As we have reported previously, there was a sharp spike in completed sales in March. We expect this to be followed by a further smaller spike in June when relief is scaled back in England and Northern Ireland (having already ended in Scotland and Wales).
• That expectation follows the resurgence in sales that were agreed in March and April. However, sales agreed in May are somewhat less likely to be completed by the end of June. Consequently, they give us a better indication of underlying levels of demand.

A continued supply demand imbalance

• Against this backdrop, yesterday’s release of the RICS Residential Market Survey for May makes for interesting reading.
• Based on a net balance of opinion, it continued to show positive readings for new buyer enquiries, though to a lesser degree than in preceding months (+32 in May compared to +44 in April).
• Similarly, data from TwentyCi shows that sales agreed in May were 6% lower in April across the market as a whole and 10% lower in the market between ￡500,000 and ￡1mil (where stamp duty savings have had the biggest impact).
• Yet, overall they remain 42% above market conditions and 87% above 2017-2019 levels in the market above ￡1mil.
• This combined with much lower relative levels of stock coming to the market suggests further short term upward pressure on prices. However we expect this to be at reduced rates as some of the current market intensity starts to ease.

With that in mind, sellers shouldn’t let their price expectations run away with them if they are to take advantage of current market conditions.