Britain’s housing market boom runs out of steam

Average house price drops to £251,968 in biggest monthly fall since April

A terrace of residential houses in the Dulwich district overlooking skyscrapers in the City of London. In February alone, house prices rose 0.7 per cent reversing a 0.2 per cent decline in January. BlShow more

The average British house price dropped to £251,968 ($343,598) in January, the biggest monthly fall since April last year, according to Halifax, as the country’s mini housing boom showed signs of running out of momentum.

While house prices were 0.3 per cent down from December, they were still 5.4 per cent higher than in January last year.

“There are some early signs that the upturn in the housing market could be running out of steam, with the annual rate of house price inflation cooling to its lowest level since August,” said Russell Galley, managing director of Halifax.

“Industry figures for agreed sales remain well above pre-pandemic levels but new instructions to sell have decreased noticeably, and total stock held by estate agents has risen to its highest level since before the EU referendum in 2016.”

Britain’s housing market was buoyant last year ,with more mortgages approved in 2020 than in any year since 2007, according to Bank of England figures.

The strong lending figures were attributed to a temporary stamp duty land tax holiday, unveiled by UK finance minister Rishi Sunak last July.

While the tax cut expires on March 31, it allowed buyers to save as much as £15,000 and propelled the housing market even as the pandemic sent the wider economy into its deepest slump for three centuries.

While the typical property value is now at its lowest level since October, prices are still about £13,000 higher than a year ago.

The stamp duty break will continue to fuel demand in the early part of this year “given the current time to completion across the market”, said Mr Galley.

Analysts expect the "stamp duty cliff edge" could lead to collapsed deals, with one in five of the 457,358 purchases made subject to contract at the end of 2020 likely to fall through, according to TwentyCi.

Mortgage approvals actually fell 1.8 per cent in December, Bank of England data showed, and new buyer activity also slowed, according to Royal Institution of Chartered Surveyors.

Looking ahead, Mr Galley said it is unclear how long the slowdown will last considering the challenges associated with the pandemic.

“With swathes of the economy still shuttered, and joblessness continuing to edge higher, on the surface this points to slower market activity and downward price pressures in the near term,” he said.

“That said, we saw the power of homeowners to drive the market in the second half of last year as many people looked to find new properties with greater space, spurred on by increased time spent at home. Such structural demand changes, coupled with any further policy interventions by government, could yet sustain underlying market activity for some time to come.”