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House prices cool in January – is the property market running out of steam?

Although prices cooled last month when compared to December, the Halifax figures highlight that annual average house price growth is still significant at 5.4 percent when compared to January 2020. This comes as the latest Bank of England figures show that the total number of mortgages approved to fund property purchases fell in December 2020 by 1.8 percent to 103,381 during the month, although there was an annual increase of 53.6 percent when compared to December 2019.

Russell Galley, Managing Director, Halifax said: “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.

“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.”

Russell continued: “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.

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“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.”  

Following the Monetary Policy Committee’s announcement yesterday, Group CEO of Enness Global Mortgages Islay Robinson believes: “It’s becoming increasingly likely that the Bank of England could push interest rates into negative territory and this could be reflected in sub one percent 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.”

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Islay added: “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.” 

Although rock bottom mortgage rates may sound appealing, what could that mean for the property market this year?

Tom Bill, Head of UK Residential Research at Knight Frank observed: “The housing market hit peak uncertainty during the pandemic in January. Ambiguity surrounding the end of the stamp duty holiday came at the same time as stricter lockdown measures and the arrival of new Covid variants.

“The initial wave of pent-up demand that began in May 2020 is now clearing through the system, accelerated by the end of the stamp duty holiday.”

Tom goes on to suggest that a taper to the stamp duty holiday would avoid the impact of a cliff-edge for the housing market and wider economy, although he cautioned: “We expect prices to end the year flat as demand becomes steadier and more seasonal in the second half of this year.”

With the end of the stamp duty holiday coinciding with the end of the furlough scheme in April, there are fears that this could create the ‘perfect storm’ in terms of demand for homes rapidly decreasing over the summer and prices reducing as a result.

Gareth Lewis, commercial director of property lender MT Finance, suggested: “It is natural to see property prices softening now. Since the back end of the first lockdown there has been a flurry of demand for people to transact and take advantage of the stamp duty holiday, and that couldn’t continue indefinitely.

“A £13,000 increase in the average house price over the year is phenomenal given what we have gone through and are still going through.”

“In a sense, it is a false high given that nothing in the economy points to why house prices should rise – it is just that people decided they wanted more space and needed to move.

“That huge demand and desire outstripped everything else. We even got to the stage where people were being gazumped.”

Gareth concluded: “At some point, prices need to stabilise. This happened in January, following a Christmas break where we forgot about life and work to an extent, before moving into yet another lockdown, which has had an impact on people’s outlook and mentality. Activity levels are definitely quieter.”

You can hear more from Louisa on the latest episode of The Property Show Podcast

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