Residential property prices in the UK suffered their steepest decline since April last year as the recent homebuying boom fuelled primarily by the government’s stamp duty holiday appeared to lose momentum.
According to Halifax, UK house prices dropped 0.3% month-on-month in January to reach an average of £252,000, the biggest fall since a 0.6% decline last April at the start of the Covid-19 pandemic
The fall ends seven consecutive months of property price increases dating back to May, when the average UK house price fell by 0.2%.
Russell Galley, managing director of Halifax, said: “There are some early signs that the upturn in the housing market could be running out of steam.”
He added: “How far and how deep any slowdown proves to be is a challenge to predict, given the prevailing uncertainty created by 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.”
The stamp duty holiday in England introduced last July is due to end at the end of next month, which has raised concerns that sales could potentially reach a cliff edge.
Nicky Stevenson, managing director at Fine & Country, said: “The lockdown is playing its part in keeping prices as high as they are because it has reduced supply, fuelling greater competition among buyers for what is available.
“The Budget is only around the corner now and, while it remains to be seen whether the Chancellor will extend the stamp duty tax break, he has a big deficit and many other levers to pull that could affect the market in much more significant ways.
“Politicians are used to hearing people cry foul when handouts end. Treasury minister Jesse Norman told a Parliamentary debate earlier this week that the stamp duty holiday has done its job. Therefore the focus could quite quickly shift to other issues, such as capital gains tax.
“The stamp duty holiday has now faded as a force behind agreed sale prices, though some buyers with smaller chains are still hoping to complete before the deadline.”
Jonathan Hopper, CEO of Garrington Property Finders, commented: “After months of accelerating through the gears, January’s nationwide lockdown has reapplied the brakes to the property market.
“While officially open for business and with Covid-safe viewings able continue, for now the engine is in neutral – and the majority of sales completed in January were already in train before lockdown was declared.
“This sense of inertia has led some would-be sellers to pause, and estate agents report that the number of homes coming onto the market is chronically low – with some seeing a 70% decline compared to December.
“On the flipside, buyer demand remains strong and enquiries from prospective buyers continue at a brisk pace. With estate agents sitting on the highest level of stock since before the Brexit referendum of 2016, prices are starting to rebalance.
“Clearly the white-hot pace of price rises seen in the second half of last year is cooling, but with so much pent-up demand in the system, the overall momentum is set to continue.
“Tens of thousands of aspiring buyers remain determined and ready to move, and as the Stamp Duty deadline ceases to be a factor, these people will take their time.
“For now all the signs point to a gentle reappraisal of prices, with any falls likely to be confined to a soft landing rather than a crash.”
Matthew Cooper, founder and managing director of Yes Homebuyers, said: “Whilst showing a buoyant quarterly and annual rate of house price growth, the figures also suggest the first slip in values since summer.
“Why? Because sellers have perhaps been rather too optimistic in their pricing having been buoyed by the hype of the stamp duty holiday. While buyers have been happy to go that little bit extra to secure a property with this additional cash in their back pocket, many are starting to realise that completing in time to actually see this cash is very unlikely.
“As a result, they are now reigning in their spending and sellers are having to adjust in light of this reality in order to secure a sale.”
Andrew Montlake, managing director at the UK-wide mortgage broker, Coreco, commented: “The UK property market went supersonic after the introduction of the stamp duty holiday last summer and, with the deadline fast approaching, it has inevitably slowed down.
“In hard economic terms, and with the Stamp Duty holiday over in all but name, the property market is facing a huge amount of uncertainty.
“Despite this, there continues to be a lot of demand for the structural reasons the Halifax outlines.
“The Covid-19 pandemic has triggered a massive rethink among homeowners and prospective homebuyers and this will continue to support demand and activity levels throughout 2021.
“The rules of the game have changed. Properties that were perfect a year ago are often no longer what people want as work and life priorities have been turned upside down.”
Founder and CEO of GetAgent.co.uk, Colby Short, said: “We shouldn’t read too much into one slight monthly drop in property values, particularly one that falls in January, albeit we do seem to be a nation increasingly obsessed by the minutiae of house price movements.
“The market has accelerated to new highs in the last year and we can suspect that once the stamp duty holiday ‘will he, won’t he’ is behind us, prices will continue this upward trend, backed by a vaccinated economy returning to some degree of normality.”
Miles Robinson, head of mortgages at online mortgage broker Trussle, commented: “The continued month-on-month decrease in house prices is likely to reflect the slowdown in demand as we approach the end of the stamp duty holiday. With as many as 105,000 property transactions in the balance, It’s becoming clear that a ‘cliff edge’ deadline could cause a big shock to the market if buyers can’t complete in time and start to pull out of their house purchases. After many months of unprecedented demand and house price growth, now is the time that we could start to see activity in the market begin to weaken.
“It’s unlikely that those now starting on their home ownership journey will complete before the stamp duty holiday deadline. It takes on average 134 days to complete on a property purchase in the UK, so we’d encourage all buyers to use a stamp duty calculator to factor in the additional costs if they miss the 31st March deadline. We might start to see those who think they will miss out renegotiate the price of their property down to try and prevent their chain from falling through and maximise the money they can save.
“There has been recent debate about whether a gradual tapering of the scheme would be a more effective way of bringing it to a close, and it’s certainly worth considering if we see growth continue to slow.”
The group CEO of Enness Global Mortgages, Islay Robinson, said: “It’s becoming increasingly likely that the Bank of England could push interest rates into negative territory and this could be reflected in sub 1% home-loans by the summer.
“While this will certainly add further fuel to a property market that has fully come to the boil of late, we could well see the rate of house price growth enjoyed in recent months continue to cool.
“This is largely due to many lenders tightening their criteria and only offering the most favourable products to those with adequate, long term financial security. As a result, buyers will have to be realistic about what they can borrow and how much they can afford to pay for the pleasure, which should ensure house prices don’t spiral out of control.”
The founder and managing director of HouseScan, Harry Yates, commented: “A marginal month-on-month decline in January is to be expected given the slow start that tends to been seen across the market following the festive break.
“While the end of the stamp duty holiday may bring a reduction in market activity levels, the impact of this reduction on top-line property values is unlikely to be felt until some months down the line.
“As a result, we can expect to see house prices continue to climb as we approach the deadline and it will take some time for the dust to settle before we know what impact its expiry has on the market, if any.
“The chances are any detrimental consequences will be minimal and amount to little more than a natural cooling in the rate of house price growth. So while current homebuyers are unlikely to benefit from a stamp duty saving, the overall value of their investment is likely to remain robust.”