Nationwide warns of 'false dawn' after UK house prices leap 1.7%

The UK’s biggest building society has warned of a “false dawn” in the housing market after reporting a 1.7% leap in prices in July.

Nationwide said the rebound had been powered by pent-up demand from those who wanted to move before lockdown. There was further demand from people deciding they wanted to move after being confined in their homes for several months.

But it said if companies continue to make people redundant, the market could slow down later in the year.

The property market has had a busy few weeks since it was released from lockdown in mid-May. Estate agents and lenders reported an immediate flurry of activity, which was boosted by the chancellor’s announcement of a stamp duty holiday of properties costing up to £500,000.

Nationwide’s figures put the average price of a UK home at £220,936, higher than in June but below April’s figure of £222,915. On a seasonally adjusted basis, prices have fallen by 1.6% over the past three months.

Robert Gardner, Nationwide’s chief economist, said July’s figure reflected the “unexpectedly rapid” recovery in activity since the easing of lockdown restrictions, with physical-distancing measures not having the impact that some had feared.

“The rebound in activity reflects a number of factors. Pent-up demand is coming through, where decisions taken to move before lockdown are progressing,” he said.

“Behavioural shifts may be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown.”

Gardner said he expected these trends to continue in the near term, particularly as the stamp duty holiday offered an incentive for people to bring plans forward. “However, there is a risk this proves to be something of a false dawn,” he said.

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“Most forecasters expect labour market conditions to weaken significantly in the quarters ahead as a result of the after-effects of the pandemic and as government support schemes wind down. If this comes to pass, it would likely dampen housing activity once again in the quarters ahead.”

Lucian Cook, the head of residential research at the property firm Savills, said the market had proved more robust than expected but warned against reading too much into one month’s figures.

“The market is currently being driven by those with the security in their household finances to be able to act on the lifestyle changes and desire for more space that the experience of the lockdown has brought about,” he said.

He said there had been a strong sales bounce for homes worth more than £500,000, while further down the market, sales numbers were taking longer to recover and may be hit later in the year as the furloughing scheme unwinds.

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Hansen Lu, a property economist at Capital Economics, said Nationwide’s figures were likely to be accurate, as mortgage lending had recovered in June to 60% of its usual level. This meant there was plenty of data to base its report on.

“Looking ahead, the outlook for house prices is uncertain. With the furlough and mortgage holiday schemes due to end later this year, the housing market is unlikely to strengthen much further in the near-term,” he said.

“We may still see renewed price falls this year, as the early wave of pent-up housing demand cools off and unemployment creeps up further. At the same time, today’s data also reinforces our view that a house price crash is now unlikely.”

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