The property market in 2020 has been a rollercoaster ride. The pause button was hit and thanks largely to the stamp duty cut, instead of prices heading downwards, they’ve rocketed higher.
As predictions about what the pandemic would do to property values were proved wrong, potential buyers and sellers have looked to price indexes to provide some hard data to cling onto amid all the speculation.
With the last indexes of the year now rolling in, a picture is emerging of what really happened to house prices across the year as a whole.
House prices in the UK increased this year, despite the uncertainty brought on by Covid-19
Whichever one you look at, prices have increased substantially compared to 2019 as the market bounced back strongly after the first lockdown.
Halifax, which traditionally takes the most bullish view on the market, has said prices grew by 7.6 per cent in the year to November, reaching £253,243.
Nationwide reported similarly high 7.3 per cent growth – the fastest for six years – and said the average property was £11,000 more expensive in December than at start of the pandemic.
At the other end of the scale, property website Zoopla recorded 3.9 per cent growth and a high of £222,900.
The Office for National Statistics, which takes data from completed sales rather than properties that are listed or approved for mortgages like the other indexes, put the growth at 5.4 per cent – the highest seen since October 2016 – and the average price at a record high of £245,000.
But as it runs slightly behind other indexes, this applies to the year to the end of October rather than November.
An average of these figures along with Rightmove data suggests that the typical home in the UK is now worth around £254,402 – or 6 per cent more than a year ago.
This is roughly £15,000 more across all indexes, exactly the maximum that can be saved on a £500,000 home with the current stamp duty holiday.
Other than the North East, all regions of England have now surpassed their 2007 pre-downturn peak.
|Index||Latest annual price rise for 2020 (%)||Latest average UK house price||Predicted annual price growth in 2021 (%)|
|Halifax||7.6||£253,243||– 2 to –5|
(figures based on asking price)
Prices had ups and downs – but mostly ups
There were several key moments in 2020 when it came to house prices.
The year started off with a ‘Boris bounce’ in asking prices, as vendors were buoyed by the Conservative victory in December 2019’s general election.
This was backed up by a growth in sale prices, as Zoopla noted a 3.6 per cent uptick in January.
However, this confidence appeared to be short-lived, and Nationwide predicted that prices would stay ‘broadly flat’ throughout the year.
Then came Covid. Analysts initially estimated that house prices could drop 20 per cent, and as the UK went into lockdown and the housing market shut down, Rightmove said that house price indexes had become meaningless.
The average cost of a home in the UK has now reached £245,000, according to the ONS
What happened next came as a surprise to many. While prices dropped month-on-month during the late spring and early summer according to most indexes, they still remained higher than they were in 2019.
For example in April, Halifax reported that house prices still grew 2.7 per cent year on year.
Zoopla then reported in June that the reopening of the housing market and resulting pent-up demand led prices to return to pre-Covid levels.
Then, Rishi Sunak’s announcement of a stamp duty holiday for homes worth up to £500,000 added fuel to the fire.
In July, the average asking price hit a record high of £320,265 – 2.4 per cent higher than before the pandemic in March – in what Rightmove described as a ‘mini boom’ driven by a 75 per cent spike in buyer enquiries.
Properties with gardens and home offices were top of their wish list as lockdown saw people reassess their housing priorities.
Defying forecasts from earlier in the year, property prices then began to climb, with several of the indexes reporting record highs throughout the autumn.
The latest ONS figures show that the average home in the UK cost £245,000 – an uptick of 5.4 per cent or £13,000 – in the year to October, while Nationwide’s index reported that the price of a home increased by 6.5 per cent to £229,721 in the year to November.
House price winners and losers
New data from Halifax has revealed the areas that saw the biggest increases and decreases in house prices in 2021.
Islington in North London saw the biggest property price jump at an average of 13.4 per cent or £85,918. Leeds saw a 11.3 per cent lift – or £25,024 – putting it second in the Halifax table. Meanwhile, Croydon came in third with a 10.9 per cent increase equating to £39,117.
On the other end of the scale, house prices in Paisley, Scotland cooled by 1.7 per cent or £2,448. The cost of buying a home in the popular Hackney area of London has become £9,843, or 1.5 per cent, cheaper, making it the second greatest fall in the UK.
Also in London, the boroughs of Merton and Greenwich experienced the fifth and sixth biggest dips, with house prices falling by 0.6 per cent and 0.2 per cent respectively.
What will happen in 2021?
Despite ending the year with record highs, many still believe that house price growth cannot last.
Halifax has said prospects for 2021 look weaker, with prices expected to fall by between 2 per cent and 5 per cent, although it admitted that ‘forecast uncertainty is much higher than usual this year’.
Experts say that house price growth could be set to decline as we move into 2021
In particular, housing market experts are concerned that activity may peter out once the stamp duty holiday comes to an end on 31 March 2021, and after wage support schemes such as furlough start to taper off.
Lucian Cook, head of residential research at Savills, said: ‘On average, the stamp duty holiday only provides a 1 per cent saving on the purchase price, which looks fairly small compared to the price growth we have seen since it was introduced.
‘[But] we do expect a lull in housing market activity in the aftermath of the stamp duty holiday, particularly among those potential buyers who are relying on the saving to give them with enough equity to allow them get a competitive mortgage.’
We do expect a lull in housing market activity in the aftermath of the stamp duty holiday
Zoopla has predicted that house price growth will reach five per cent in February, but slow to one per cent by the end of the year.
It said the boost provided by the stamp duty discount was ‘secondary to the intrinsic appetite for more and better quality living space compounded by the global pandemic,’ and that the growing availability of 10 per cent deposit mortgages would provide support to first-time buyers.
Richard Donnell, director of research and insight, said: ‘Looking ahead to 2021 we expect house price growth to reach five per cent by mid Q1 and then slow to one per cent by the end of the year as demand starts to weaken over [the second half of the year].
‘Overall, we expect the number of completed housing transactions to match 2020 levels at 1.1m.’
Rightmove has bucked the trend, however, forecasting robust 4 per cent growth in asking prices in 2021 as housing priorities ‘stay high on people’s life agendas’.
Why are the indexes so different?
The reason that house price indexes vary is because they take data from different sources, at different points in the sales process, and analyse it in different ways.
There are two sources of house price data that come from the Government: the Office for National Statistics’ UK House Price Index and HMRC transaction data.
The UK HPI draws on data from the Land Registry, so it only registers sales once the purchase has completed. This means it is a very accurate way of looking at changes in house prices over time – but it does operate with a time delay. For example, sales included in the November index will probably have been agreed in September.
Figures from the ONS showed that house price growth hit a four-year high in October 2020
The number also changes over time, as more data is added as it comes in. This does not affect the headline statistics much, but it can affect the data significantly if you are drilling down into a specific location.
Another way to take the temperature of the property market is to look at HMRC transaction data.
This is a monthly estimate of the number of residential and non-residential property sales based on property tax transactions, for example the payment of stamp duty. However, this does not cover house prices.
Mortgage approval data
There are two house price indexes based on mortgage data: Halifax and Nationwide. Nationwide tracks properties after they have been surveyed, while Halifax uses its mortgage approval data.
This means they reflect market trends more quickly than indexes based on completions.
Both identify a ‘representative’ or ‘standardised’ house based on several characteristics, and track price movements on that house up or down.
Mortgage approval data can show changes more quickly than Government statistics
The numbers that come out depend to some extent on the type of properties that the bank has provided mortgages for.
However, they use a process called ‘mix adjusting’ to try and eliminate this bias. For example, if Nationwide’s data was skewed toward homes in the South East because it did more lending there, mix adjusting would go some way toward evening that out.
Halifax has collected house price data since 1983 and Nationwide since 1991.
Rightmove and Zoopla
Property websites Rightmove and Zoopla also have their own methods of tracking house prices.
Unlike the other indexes, Rightmove monitors asking prices rather than sale prices, drawing its data from around 95 per cent of homes currently on the market.
This makes it a good indicator of seller confidence. If asking prices go up, it generally indicates that there are lots of interested buyers in the market.
However, it can be skewed by property type. For example, if there happens to be a spike in one-bedroom flats being put up for sale in a particular area, the average asking price will go down without reflecting any real change in sentiment.
The Zoopla house price index is based on repeat sales, which means it tracks sales of the same property over many years. It draws its data from sale prices on completion, mortgage valuations and data for agreed sales.
This removes discrepancies based on property type, but it is not always helpful if you want to look at prices in a small geography because it might reflect only a handful of recent sales.
Indexes adjust their data to even out discrepancies based on the season, which is why you might see ‘seasonally adjusted’ figures.
This is because the winter months tend to see weaker price rises while the summer months are higher, as they are a more popular time for people to move house.
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