House prices have fallen this month after a scaling back of the tax break on stamp duty dampened demand.
Prices were down 0.5 per cent in July compared with June, the first month-on-month fall since March, according to data from Nationwide published this morning.
On an annual basis UK house prices rose by 10.5 per cent, showing that the market remains strong, although this is down from the 13.4 per cent year-on-year rise in June, the steepest for 17 years.
A cooling of the market was expected after a rush to complete housing transactions by the June 30 deadline to benefit from a cut to stamp duty. However, the Nationwide findings were worse than economists had forecast. Economists polled by Reuters had expected a less marked cooling of the market, predicting that prices would rise by 0.6 per cent from June and by 12.1 per cent in annual terms.
Rishi Sunak, the chancellor, announced the stamp duty cut last summer to boost the housing market during the Covid-19 crisis. Under the scheme, the first £500,000 pounds of any property purchase in England or Northern Ireland were exempt from the stamp duty tax until the end of June. This was the equivalent of a tax cut of up to £15,000 for homebuyers. A £250,000 pound tax-free allowance is running until the end of September as part of a tapering of the scheme before it ends completely. The scheme means that on a £750,000 property purchase the buyer paid £12,500 in stamp duty before June compared with £27,500 normally. Between now and September they will pay £25,000.
Despite the discounts, Nationwide’s chief economist, Robert Gardner, said the rush to qualify for the full tax break — housing transactions hit a record in June, according to official data — meant the surge in house prices had dwarfed the savings consumers made from the scheme.
“Interestingly, the ‘savings’ from the stamp duty holiday have been dwarfed by the impact of recent house price gains,” he said. “For example, the price of the typical UK property increased by around £24,500 between July 2020 the end of June this year, whereas the stamp duty saving on that property for a home mover (in England) was about £1,900.
“For a £500,000 property that saw the same average increase as the typical property over the same period, the comparable house price increase was about £57,000 against a stamp duty saving of £15,000.”
Gardner said July’s slowdown had been expected after the run-up in prices, which rose by an average of 1.6 per cent a month over the April-to-June period — more than six times the average monthly gain during the five years before the pandemic. “Underlying demand is likely to remain solid in the near term.”
Improved consumer confidence, low borrowing costs and a shortage of homes on the market would provide support for house prices despite an expected rise in unemployment as the government scales back its pandemic jobs support programme.
“Even if the labour market does weaken, there is also scope for shifts in housing preferences as a result of the pandemic to continue to support activity for some time yet,” Gardner said
Investment Synergy - False economies.....the stamp duty holiday caused a herd mentality that stampeded the housing sector, costing those purchasers increased overall costs in the long run without pause or due consideration.
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