British house prices dip for second month in a row in February

Market slowed before Rishi Sunak’s budget boost for the residential market

A For Sale sign is attached to a building in Tunbridge Wells, southeast England. While house prices were 0.1 per cent down in February from the month before, they were still 5.2 per cent higher than iShow more

The average British house price dropped to £251,697 ($348,340) in February, according to the Halifax House Price Index, as the country’s mini housing boom continued to soften.

However, while house prices were 0.1 per cent down from January, the second monthly dip in a row, they were still 5.2 per cent higher than in February last year.

Meanwhile, prices in the period from December to February were 0.5 per cent higher than in the preceding three months.

“Having enjoyed an extremely strong period of activity in the second half of last year, the housing market continued its softer start to 2021, with average prices down very slightly compared to January,” said Russell Galley, managing director of British lender Halifax.­

"However, with annual house price inflation currently at +5.2 per cent, property values remain comfortably higher than 12 months ago, when February was the last full month before lockdown."

Mr Galley said the housing market hit a crossroads at the start of year due to uncertainty in the market over UK finance minister Rishi Sunak's Stamp Duty Land Tax (SDLT) holiday.

Mr Sunak first unveiled the tax break in July last year with the first £500,000 of the purchase price of a main residence in England and Northern Ireland exempt from the levy.

The move caused a surge in transactions that sent house prices soaring to an average record high of £252,000 in 2020, according to the Office for National Statistics – up 8.5 per cent from 2019.

At the start of the year, however, buyers feared Mr Sunak would stick to the existing March 30 deadline for the tax break, causing heightened activity in the market to ease.

Then in Wednesday's budget, Mr Sunak extended the SDLT holiday in his budget statement to keep the property market buoyant as the country eases out of lockdown.

The SDLT holiday has been one of the main drivers of demand from home movers during the pandemic, with the decision to extend it removing "a great deal of uncertainty for buyers with transactions yet to complete", said Mr Galley.

He also lauded the new mortgage guarantee scheme, unveiled in Wednesday's budget, which helps first-time buyers on to the property ladder by encouraging lenders to provide mortgages to people with deposits as low as 5 per cent on properties worth up to £600,000.

The government then gives lenders the guarantee they need to provide mortgages covering the remaining 95 per cent.

Despite mortgage approvals hitting record highs in recent months, with UK lenders approving 98,994 home loans in January, Mr Galley said, "raising a deposit continues to be the single biggest hurdle for first-time buyers to overcome".

Looking ahead, Mr Galley said the performance of the housing market remains inextricably linked to the health of the wider economy.

Britain’s gross domestic product is expected to grow 4 per cent in 2021, according to the Office for Budget Responsibility, following a 9.9 per cent contraction last year.

Mr Galley said the pace and extent of the recovery is still highly uncertain, and much will depend on the ongoing success of the UK's vaccination roll-out, and Britain's unemployment rate, which hit 5.1 per cent in the fourth quarter of last year.

“Though there is the likelihood of an economic ‘bounce-back’ from lockdown, with households not unduly impacted by the pandemic deploying the significant reserves of savings that they have built up, higher unemployment is likely to limit new buyer demand," Mr Galley said.

“Therefore, we would not expect the level of growth seen in house prices over the past year to be sustained throughout 2021.”