House price growth has eased for the first time in six months, slowing from 7.3% in December to 6.4% in January, as the market catches up with itself and the chances of an extension to the stamp duty holiday look less likely.
According to the latest data released this morning from Nationwide, average house prices were down 0.3% month-on-month, after taking account of seasonal factors.
Robert Gardner, Nationwide's Chief Economist, comments: “January saw the annual rate of house price growth slow modestly to 6.4%, from 7.3% in December. House prices fell by 0.3% month-on-month, after taking account of seasonal effects – the first monthly decline since June.
“To a large extent, the slowdown probably reflects a tapering of demand ahead of the end of the stamp duty holiday, which prompted many people considering a house move to bring forward their purchase. While the stamp duty holiday is not due to expire until the end of March, activity would be expected to weaken well before that, given that the purchase process typically takes several months (note that our house price index is based on data at the mortgage approval stage).
“The typical relationship between the housing market and broader economic trends has broken down over the past nine months. This is because many peoples’ housing needs have changed as a direct result of the pandemic, with many opting to move to less densely populated locations or property types, despite the sharp economic slowdown and the uncertain outlook.
“Indeed, the total number of mortgages approved for house purchases in 2020 actually exceeded the number approved in 2019, and house price growth ended 2020 at a six-year high, even though the economy was probably around 10% smaller than at the start of 2020, with the unemployment rate around a percentage point higher.
“Looking ahead, shifts in housing preferences are likely to continue to provide some support for the market. However, if the stamp duty holiday ends as scheduled, and labour market conditions continue to weaken as most analysts expect, housing market activity is likely to slow, perhaps sharply, in the coming months.
Anna Clare Harper, chief executive of asset manager SPI Capital, says: "The looming end of the temporary stamp duty reduction is part of the cause of the slowdown in house price growth to 6.4% in January, from a six-year peak of 7.3% in December. In 2020, this ‘discount’ had an exaggerated impact on what buyers could afford since, typically, buyers can get mortgage finance based on the property value, but they cannot borrow money needed for transaction costs.
"Combined with the lockdown-inspired desire to improve surroundings and increase indoor and outdoor space, house prices moved into ‘mini-boom’ territory in the second half of 2020.
"Homeownership also increased for the third year in a row, to 64.6%. Other data sets highlight the type of buyers - existing homeowners rather than first-time buyers - that have come to dominate transactions this year.
"Looking forward, it's likely that house price growth will continue to slow, given economic conditions and the end to the temporary stamp duty reduction. However, ultimately, property prices are relatively stable since we all need a roof over our heads."