House price growth in May surpasses original expectations, as a result of the stamp duty holiday and demand for larger properties.
According to the Nationwide Building Society, UK house prices has risen at its fastest annual rate in seven years, which has been driven by the demand for larger homes outside of the city and temporary stamp duty holiday.
The UK Nationwide house price index rose by 1.8% in May compared to the previous month, bringing the average house price to a record £243,000, up by £24,000 over the last 12 months. The average house price accelerated by 10.9% in comparison to May last year, up from 7.1% the previous month which is the fastest pace since August 2014.
This increase has surpassed forecasts by economists, which predicted a 0.8% monthly increase and 9.2% annual growth.
Throughout the property market boom, agents have reported that desirable locations such as rural and coastal areas have seen increased enquiries and prices spiking. This growth is partly a result of the housing tax break, which was introduced in July 2020 to kickstart the housing market after a collapse in property sales at the beginning of the COVID-19 pandemic.
The policy exempts the first £500,000 of any property purchase in England or Northern Ireland from stamp duty land tax, which is in place until the end of June 2021. A £250,000 tax-free limit will continue to the end of September 2021.
Nationwide’s Chief Economist reported that people moving to larger properties due to spending more time working from home has also contributed to the surge in house prices. With the shift in housing preferences, this is continuing to drive activity, as the public are reassessing their needs because of the pandemic.
In addition, they added that a third of those moving or considering moving were looking at different areas, with nearly 30% wanting access to a garden or outdoor space.
Low borrowing costs have also improved the affordability of properties despite the surging prices. Data from the Bank of England identified that in March rates on newly taken mortgages were only marginally up from a record low reached in August 2020.
Chief Executive of mortgage broker SPF Private clients reported that the mortgage lender platform is launching the cheapest ever two-year fixed rate this week at 0.95%. Rates at this level will continue to support the market, while the increased availability of low deposit mortgages will assist first-time buyers who finding rising house prices increasingly difficult to deal with.