The price of a typical UK house fell by 0.6% in June, with prices 1.5% lower than one year ago, according to Nationwide's latest House Price Index. A typical home now costs £165,738.
Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said: “House prices declined by 0.6% in June, taking the annual pace of house price growth down to -1.5%, the lowest reading since August 2009. The slightly weaker trend we’ve observed since March is unsurprising, given the difficult economic backdrop, with the UK economy dipping back into recession at the start of the year and few signs of a near- term rebound. Part of the weakness in house prices may also relate to the ending of the stamp duty holiday in March, which provided a temporary boost in early 2012, as buyers brought forward purchases that would otherwise have taken place later in the year.
The outlook for house prices remains highly uncertain. Economic conditions are expected to remain challenging over the next twelve months. However, policymakers’ efforts to bolster the supply of credit to the economy and to help lower the cost should provide support to demand. Moreover, the supply side of the market is still constrained, with construction failing to keep pace with the number of new households being formed.
Overall, this suggests a continuation of the pattern experienced over the past two years, with prices remaining fairly stable over the next twelve months.
How much of a boost did the stamp duty holiday give to lending?
The expiry of the stamp duty holiday for first time buyers towards the end of March created significant volatility in the lending data in recent months making it even harder than usual to discern the underlying trend. Mortgage lending to first time buyers in March totalled £3bn, around 40% above usual levels. Moreover, 63% of first time buyer purchases in March were between £125,000 and £250,000, compared with around 50% normally.
It’s not hard to understand why the effect on the timing of transactions was so strong - bringing forward purchases offered substantial savings. We estimate that over 200,000 first time buyers benefited from the stamp duty holiday over the last two years, saving a total of nearly £375m - around £1,800 each. It is harder to assess the extent to which the stamp duty holiday generated “additional” first time buyer activity, i.e. purchases that would not otherwise have taken place. Similarly, it is hard to judge how much activity will be dampened by its re-imposition.
However, history provides some comfort that the negative impact will be short-lived. Indeed, the decline in activity in recent months echoes the pattern seen at the end of the last stamp duty holiday in December 2009 (see chart below). This provides some comfort that much of the recent softness in housing market activity will subside in the months ahead.
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