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Will rising property prices curtail demand?

Transactions remain above pre-coronavirus levels

25 June 2021

3 minute read

As property prices continue their inexorable rise, can supply keep pace with demand, and what impact, if any, will the end of the stamp duty holiday have?

If you are a regular reader of our missives you will know that property prices, certainly in the prime segment of the market, have been soaring in the recent past (Prime Property Price surge, June 2021). What readers, and many homeowners, will undoubtedly want to know is how long this price rise can continue unabated and what impact, if any, this will have on demand? To answer these questions, we take a look at the latest available data and explore what effect this surge in property prices has been having on recent transaction volumes.

What the data tells us

According to the Nationwide, house prices enjoyed their strongest month-on-month increase since February 2004, rising by 2.1% in April, or 7.1% for the last 12 months. As the Stamp Duty Land Tax (SDLT) holiday remains in place, buyer demand is likely to remain strong and it is not unreasonable to suggest that this could push annual house price growth in to double figures by the end of the summer.

This is further supported by the March RICS survey which shows that the supply of properties coming on to the market has not managed to keep pace with demand. According to HMRC, more than 180,000 transactions were completed in March 2021 alone – a record high since the Great Financial Crisis.

Where demand is strongest (and weakest)

Property sales agreed in April were 55% above the 2017-19 average, according to data agency, TwentyCi. Buyer demand has been particularly strong where buyers have benefited most from the maximum £15,000 saving on the SDLT holiday. This part of the market is mostly mortgaged home movers, whose numbers in February were 73% higher than the 2018-20 average, according to UK Finance.

Rising buyer demand appears to be having a knock-on effect on the rental market, as tenants make the move to first-time buyers. This may partly explain why rents have been falling in some city centre locations over the year to February. Rents have been hardest hit in London but even Edinburgh, Birmingham and Leeds have also suffered falls. However, according to the RICS survey for March, positive tenant demand is expected to outpace landlord instructions in the majority of regions, suggesting a pick-up in rental growth over the coming months.

What the future holds

It is likely that there will be sustained house price growth, at least in the short term, as new buyer enquiries continue to outweigh supply from new sellers. What happens after the SDLT nil rate threshold is reduced back from £500,000 to £250,000 is open to speculation but until then, expect transaction numbers to remain higher than pre-coronavirus levels.

Liam Boardman, Mortgage Specialist at Barclays, says: “With the Stamp Duty threshold changing from the 1st July it will be interesting to see if there will be continued growth and if the issues with demand outweighing supply will persist.”

Things to consider

The value of investments can fall as well as rise. You may get back less than what you originally invested.

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