Average UK house prices hit an all-time high in December 2020
Information from the ONS (Office for National Statistics) shows that UK house prices reached an all time high in December, despite the COVID-19 pandemic.
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Figures show that house prices have been increasing by 8.5% year on year since 2014 and in December, the average UK house price was £252,000.
The increases vary by country, with Wales seeing the biggest increase. In England, the average house price in December 2020 had risen by 8.5% to £269,000; Scotland saw a smaller increase of 8.4% to £163,000; The Northern Ireland average house price was £148,000, an increase of only 5.4%; Wales saw the biggest increase of 10.7% to give an average house price of £184,000.
Although the higher average in England is caused by high value areas like London, it was the capital that actually saw the smallest increase overall. House prices in London only increased by 3.5% over the past year while the North West saw a massive increase of 11.2%. Regardless of these changes, London still has the highest average house price anywhere in the UK, with an average price of £496,000. The North East still has the lowest average house price of £141,000.
There are a number of reasons for this continued increase in house prices, some of which are linked to the pandemic.
Changes in taxation laws around buying property are likely to have had a big impact. Figures show that the stamp duty holiday that was introduced during the pandemic boosted sales by as much as 140%. This increased demand is likely to have pushed prices up as many people are rushing to finalise sales before the stamp duty holiday is over. The time sensitive nature of the stamp duty holiday and the potential savings also mean that buyers are more likely to put in a higher offer for properties.
It is expected that many buyers are likely to pull out of sales if they cannot finalise in time to meet the deadline for the stamp duty holiday. Breach of contract is one of the most common causes of real estate litigation, so there is the potential for a lot of legal challenges. Any buyers need to be aware of the deadline for pulling out of the sale. In some cases, it may be best to move forward with the sale and pay the stamp duty rather than pull out and breach their contract.
Changes to lifestyles are also thought to have impacted house prices over the last year. Due to the pandemic, many people are working from home for the first time. As we spend more time in our homes, our wants and needs are different. For example, many people find that they need more space for a home office now that they are working from home. The things that people dislike about their homes are also harder to ignore when they are spending all of their time there. It’s likely that many of the lifestyle changes that were adopted during the pandemic will be permanent, which has encouraged a lot of people to buy a new house.
Working from home has also changed people’s needs in terms of location. Many people that formerly lived in the middle of cities now have more freedom to move outside of the city centre because they don’t need to commute into work every single day. The closure of the hospitality industry also encouraged people to spend more time in outdoor spaces. This shift of focus and increased appreciation for green areas may have also encouraged people to move away from the cities and into the countryside.
The pandemic also caused a temporary delay in the house buying process, so many people that had plans to move were unable to. Social distancing and lockdown regulations meant that estate agent’s offices were closed and people were unable to view properties. Once regulations started to be relaxed and the process of buying and selling property could continue, there was a big influx of sales.
The same trends in terms of increased demand can be seen in the rental market too. Figures show that demand for rental properties has increased by 21% and they are on the market for 30% less time before being let. Again, this is most likely because changes in working practices mean that people have different priorities about their homes. Renters have more reason to move out of city centres if possible because of the difference in price, which is incredibly high in many areas.
This has had a knock-on effect on city centre rent prices and figures show that prices have started to decrease. The overall cost of being a renter, on the other hand, has increased by 2.3% year on year.
Regardless of the recent boom in house prices and sales, experts mostly agree that it is unlikely to continue into 2021 for a number of reasons. Firstly the stamp duty holiday is coming to an end, which is likely to cause a slow down in buying. Many people bought earlier than they otherwise would have done because they wanted to take advantage of that window. The furlough scheme is also set to end around the same time, which is likely to lead to a lot of redundancies and much financial instability. As the impact on the economy caused by the pandemic starts to show, it’s likely that people will be more cautious with their money and avoid making any big purchases, like property.
The help-to-buy scheme is being extended in a different form, but it is focused primarily on first-time buyers. So, although it will encourage some property purchases, it is not enough to sustain the current boom. This is especially true since many people are likely to be in a worse financial position due to redundancies. On the other hand, a slow down in house prices is a good thing for first time buyers, so now is the best time to start contributing to a help-to-buy ISA.