House Prices in May Reach New Record Levels

The month of May has seen yet another hike in the average price of properties, reaching a record of £261,743, according to Halifax’s latest house price index figures. This is the strongest level seen in almost 7 years, with house price inflation rates rising by 9.5% over the last year.

During May, a significant increase in year-on-year house prices was seen in all regions of the UK, except for the North East. Wales once again showed the highest growth, with an impressive 11.9% rise in the last year. Not far behind were the North West and Humberside, with both areas reporting double-figure inflation on property prices. For the North West and Wales, these figures indicated the best gains seen since April 2005, while for Humberside, the property market has not seen rises like this since June 2006.

While the North of England is thriving, the South is not fairing as well, especially in the case of Greater London, where, although prices are up 3.1% from last year, it is still somewhat lagging behind the rest of the country. This is likely due to the shifting preference for property types due to changing work habits and lifestyles following the pandemic. With more buyers working from home, the demand for city properties has significantly decreased, with preferences steering more towards larger properties with outdoor spaces in suburban and rural areas away from big cities. Brexit and additional stamp duty surcharges for non-UK citizens will have no doubt also had a negative effect on overall property sales in London.

Russell Galley, Managing Director, Halifax, stated:

“House prices reached another record high in May, with the average property adding more than £3,000 (+1.3%) to its value in the last month alone. A year after the first easing of national lockdown restrictions and the gradual reopening of the housing market, annual growth surged to 9.5%, meaning the average UK home has increased in value by more than £22,000 over the past 12 months.

“Heading into the traditionally busy summer period, market activity continues to be boosted by the government’s stamp duty holiday, with prospective buyers racing to complete purchases in time to benefit from the maximum tax break ahead of June’s deadline, after which there will be a phased return to full rates. For some homebuyers, lockdown restrictions have also resulted in an unexpected build-up of savings, which can now be deployed to fund bigger deposits for bigger properties, potentially pushing property prices even higher.

“While these effects will be temporary, the current strength in house prices also points to a deeper and longer-lasting change as buyer preferences shift in anticipation of new, post-pandemic lifestyles: As greater demand for larger properties with more space might warrant an increased willingness to spend a higher proportion of income on housing,

“These trends, coupled with growing confidence in a more rapid recovery in economic activity if restrictions continue to be eased, are likely to support house prices for some time to come, particularly given the continued shortage of properties for sale.”

Director of Sales at Specialist Lender Together, Sundeep Patel, explains:

“The surge in demand for property we’re continuing to see showed no indication of slowing last month. House prices reached another record high in May, up by 1.3% (more than £3,000) in value than in April. Annual growth also surged by 9.5%, with the average house price in the UK now at £261,743. However, with the stamp duty tax break starting to taper off at the end of this month, we’re likely to see this unprecedented rush for new homes ease off by the time we hit the end of summer. The recently released travel traffic light list for UK holidaymakers may also dampen activity as people prepare to make a break for guaranteed sun and so stick a pin in their property plans back home.

“How the property market will shape up by the end of this year is no way near certain. However, whether house prices have been artificially inflated or not, it is possible the backlog in demand from keen buyers will markedly increase opportunities for specialist lenders as increased volumes of borrowers turn to finance, such as bridging loans, to quickly purchase their ideal homes.”

SPI Capital’s CEO of Asset Management, Anne Claire Harper, adds:

“Investors and homeowners alike are wondering whether the housing market boom is about to bust. With 9.5% house price growth in the year to May, despite the huge economic problems caused by the pandemic, it’s a sensible question.

“The truth is, what tends to happen in the housing market is different from what happens with other purchases and investments. In other sectors, when consumers get nervous, they stop spending so much. When investors get nervous, they are scared to sell. Things are different in the housing market because homes are ‘essential’. We all need a place to call home.

“So, unlike crypto ‘investments’ or shares, people tend not to sell unless they really need to. And, with interest rates low and forecast to remain so, it can be cheaper to pay a mortgage on an equivalent property than to pay rent. So a mass sell-off from property owners who have already managed to put down a deposit seems unlikely unless interest rates rise significantly.”

‘According to Halifax, average annual house prices are at a historic high, at £261,743, which will seem unaffordable to many—in particular, younger people. A big cause of growth over the past year has been the desire for more space, and for those not moving, home renovations are increasingly popular. This is symbolic of our rising living standards, which is, on the whole, a good thing. As a result, house prices and construction costs are rising. This means, in turn, that the cost of renting, buying, and improving homes is likely to continue to rise.”