Double-digit house price rises in May are the highest since the financial crisis

Sarah Coles, personal finance analyst at Hargreaves Lansdown, comments on the publication of the ONS May house price data, which shows double-digit house price rises are highest since financial crisis, and could be as good as it gets for a while.

Key points from the House Price Index:

Average house prices were up 10% in a year to May. This is the highest annual price growth in almost 14 years – since just before the onset of the financial crisis in September 2007.
The average house price was just under £255,000, just shy of the record price in March (£256,000). It’s up £23,000 in a year.
House prices in London were still the highest in the UK at an average of £498,000. This was down from the peak of £500,000 in March.
Prices in the North West saw the highest annual growth at 15.3%, while London saw the lowest annual growth of 5.2%.
Houses maintained their price rise premium over flats, with detached properties up 11.3% and flats 6.5%.
New builds were up 12.2%, and previously-owned properties 9.7%.

Sarah Coles says:

“In May, double-digit house price rises hit the dizzying heights we last saw just before the onset of the financial crisis, but this could be as good as it gets for a while. We’re not expecting precipitous falls, but rises are unlikely to be as steep in the coming months. While homeowners may miss the boost to their wealth, it could be a blessed relief for buyers.

“The May figures show the impact of moving the stamp duty deadline. Sentiment takes a while to feed into these figures, because the gap between the initial enthusiasm of a house buyer and final exchange is a soul-destroying period of around three months. It means many of the property sales completing by the end of May are likely to have been agreed at the start of March – when Rishi Sunak confirmed the stamp duty extension in the Budget.

“At this stage, buyers bounced back into the market, but sellers were more cautious. Previous HMRC data shows the number of properties sold during May fell, but a shortage of properties on the books meant that those which did sell went for higher prices.

“This could be as good as it gets for a while. The commercial indices for June show strong annual growth, but month-on-month prices are either slowing or dropping, and with the stamp duty holiday having tapered at the end of June, this may well be just the start of it. While house prices are likely to continue rising, the pace of those rises may slow.

“This doesn’t mean we’re due falls though. A shortage of properties for sale combined with record low mortgage rates should provide a floor under prices. It usually takes a shock to the system to upset the housing market: like interest rates rises, unemployment or recession. None of these are forecast to be a major problem for the next few years.

“Coronavirus still has the power to surprise us on the downside, and there’s always the potential for new variants to scupper predictions, but right now we’re expecting rises to ease and property sales to slow rather than anything more dramatic.

“Anyone currently saving to buy a house will be desperately hoping the the market pauses for breath. First-time buyers have spent months running to stand still when saving for a deposit, as their target moved further out of reach each month. If price rises slow, it will give them an opportunity to catch up.

“If you’re saving for your first home, and expect to buy at least a year down the line, it’s worth considering a Lifetime ISA for the first £4,000 of your savings each year. The government will top it up by 25% – so every year you could get £1,000 of free money from the government towards your property purchase. So much of buying a property feels like endless striving with little reward that it’s a welcome change to get something for nothing.”

Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay