By Graham Vanbergen: According to the Office for National Statistics (ONS), property prices have now reached a record high as of December 2020. Here are their statistics in brief – released February 17th 2021 (source):

• UK average house prices increased by 8.5% over the year to December 2020, up from 7.1% in November 2020, to stand at a record high of £252,000; this is the highest annual growth rate the UK has seen since October 2014.
• Average house prices increased over the year in England to £269,000 (8.5%), in Wales to £184,000 (10.7%), in Scotland to £163,000 (8.4%) and in Northern Ireland to £148,000 (5.3%).
• The North West was the English region to see the highest annual growth in average house prices (11.2%), while London saw the lowest (3.5%).

 

Today, the government, via the Chancellor, has decided that the housing market is simply too important in keeping the economy going and decided to keep the stamp duty holiday going until the end of June this year.

The Times 24/01/21 – “Rishi Sunak is preparing to extend the stamp duty holiday by three months until the end of June in an attempt to keep the property market firing as Britain emerges from lockdown.

In July last year the government exempted most buyers from the levy if they completed their purchase before March 31, 2021. The holiday enables people to save up to £15,000 in tax. The chancellor has faced pressure to extend the deadline amid concerns that it would create a “cliff-edge”, jeopardising hundreds of thousands of sales.“

The Office for Budget Responsibility, the fiscal watchdog, had forecasted that there would be a significant slowing of the housing market if the stamp duty holiday came to an end on March 31. However, its predictions changed throughout the pandemic saying at one point that house prices could drop by more than 8 per cent this year, then 3.8 per cent and then growth of nearly 10 per cent in 2022 – all of which look to be wrong (source).

The number of residential property transactions in January 2021 was 2.4 per cent lower than in December 2020, government figures show. However, at 121,640 transactions, this was 24.1 per cent higher than in January 2020.

These numbers tend to show that the market is being driven more by government intervention, than by the natural forces of the free market economy. If the treasury decides to stop the stamp duty holiday at some point in the future, which it will increasingly find difficult to do, property prices will inevitably fall.

Later in the year, the real effects of the pandemic on the economy will start to emerge as will other pressures, so it would be more surprising to see the Chancellor ending the stamp duty holiday at all this year, given how much revenue is generated as a result of property transactions such as – professional fees, removals, kitchen/bathroom equipment, refurbishments, soft furnishings and so on.

At best, property prices look set to be potentially volatile as decisions by the Chancellor are now having a signifiant effect on the direction of travel.