House prices have undergone their strongest five-monthly gain since 2004, with the average property price rising more than £15,000 since June, according to the latest Halifax House Price Index.

Despite the pandemic inflicting widespread damage on the economy, the housing market has remained robust over 2020. Even November’s nationwide lockdown couldn’t hamper buyers’ zeal, with house prices up 1.2% over the month compared to October. 

With UK inflation still trudging along at historically low levels, why the continued rise in house prices? Two reasons. The first is the temporary cut to stamp duty for properties up to £500,000 announced by Rishi Sunak during his Summer financial statement in July. That amounts to a maximum saving of £15,000.

But that’s not the primary driver here. Halifax points out that the current stamp duty saving of £2,500 on a property costing £250,000 is “now far outweighed by the average increase in property prices since July”. The index also noted how properties sold to home-movers recorded a much higher rate of annual house price inflation (7.9%) than first-time buyers (5.8%), even though the latter were the intended beneficiaries of the stamp duty holiday. 

Buyers probably consider the stamp duty holiday when deciding to move, but it’s unlikely to save them any more money than if they’d moved this time last year.

More pertinent is the fact that many people’s working habits have changed as a result of the pandemic, along with their priorities. With many city-dwellers now working more flexibly, they’re seizing the opportunity to replace wistful afternoons spent watching Escape to the Country with the real deal.

Demand has been driven largely by wealthy households that have accumulated savings and reflected on their lifestyles over lockdown - even back in May, a Nationwide survey found that around 15% of people surveyed were considering moving as a result of life in lockdown.

According to Halifax: “With mortgage approvals at a 13-year high, the current market continues to be shaped by a desire for more space, the move from urban to rural locations and indications of a trend for more home working in the future.”

Nationwide, in their most recent House Price Index, found that a property located within a national park attracts a 20% premium over an otherwise identical property. That’s an addition of around £45,000 on the average house price. 

And it’s a premium buyers are willing to pay. Though moving from city to country is usually associated with cost-saving, Zoopla reported in October that in half of the top 10 most popular hotspots, people were paying a premium to live in a more rural location compared to its nearest city. In the Cotswold district, buyers were likely to pay 20% more for a three-bed, semi-detached house than for the equivalent in neighbouring Bristol.

How long can this trend continue? It’s hard to be sure. The UK’s economy will take many years to recover from the pandemic. While this is a market primarily driven by wealthy households, it will undoubtedly be impacted. A slowdown in housing market activity should be expected soon.

And though the stamp duty holiday had little material impact in recent months, there are concerns that the housing market could go into sharp reverse if it’s not extended. The cut is currently due to end on 31 March, the same day as the furlough scheme’s close. That date could pose something of a cliff-edge to the market, disincentivising buyers precisely at a time when the economy could be suffering most.

Nationwide certainly cut a pessimistic tone: “Housing market activity is likely to slow in the coming quarters, perhaps sharply, if the labour market weakens as most analysts expect, especially once the stamp duty holiday expires at the end of March”. 

There's likely to be a rush of activity over the first quarter as buyers seize their final opportunity to avoid paying stamp duty. What happens after that, like much of 2021, remains unclear.

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