House prices jump by £10,000 in a year

House prices have soared by more than £10,000 during the past year as the scramble for homes continues.

The increase, which is the largest rise in value recorded since October 2016, left the average home costing £229,300 in May, according to our latest monthly House Price Index report.

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This house price growth has pushed 1.8 million properties into a higher stamp duty bracket.

High demand from potential buyers has also led to the average time it takes to sell a home nearly halving to just 22 days, down from 42 days in May 2019. It makes it the fastest-moving housing market for five years.

But there are signs that the market is beginning to cool as the stamp duty holiday on homes costing up to £500,000 comes to an end.

What’s happening to house prices?

Annual house price growth was 4.7% in May – more than double the 2.2% it was running at in the same month of 2020.

House prices are rising fastest in the most affordable markets, with growth in Wales hitting a 10-year high of 7.1%, while property values rose by 6.8% in Northern Ireland and 6.2% in Yorkshire & the Humber.

Meanwhile, in London house prices rose by just 2.2% – the seventh month running during which the capital recorded the lowest gains in the UK.

In terms of individual cities, Liverpool and Manchester continued to record the highest price growth at 7.9% and 7.2% respectively.

How busy is the housing market?

Buyer demand is down 28% from its pandemic peak, moderated by the end of the full stamp duty holiday on the first £500,000 of property this month. But to put this into context, it remains 55% higher than in the more ‘normal’ market of 2019.

Demand is being driven by a combination of greater mortgage availability for first-time buyers, the stamp duty holiday (which draws to a complete close at the end of September) and a pandemic-led once-in-a-lifetime reassessment of housing needs, which has seen many people search for more space.

Demand is highest for homes costing up to £250,000, which are exempt from stamp duty until the end of September.

While the number of buyers looking for properties below £250,000 is down 24% from April’s highs in England, it remains 75% higher than the average recorded in the ‘normal’ market of 2019.

At the same time, demand for homes worth more than £250,000 has dipped by a third since April, but it remains up 86% compared to average levels in 2019.

Meanwhile, the number of homes for sale is 24% lower in the first half of this year compared to 2020.

One of the reasons for this is that first-time buyers are flocking to the housing market and buying a home without having one to sell – in other words, they are not replenishing stock levels. Aspiring homeowners are being spurred on in part by the first-time buyer stamp duty exemption that extends beyond the June deadline as well as having a wider range of mortgages to choose from.

What could this mean for you?

First-time buyers and home-movers

Activity levels remain high among first-time buyers and home-movers, and the supply of homes for sale is not keeping pace with demand.

As a result, you can expect to face stiff competition for those homes that are on the market, particularly if you are looking for somewhere costing up to £250,000.

You should try to get your ducks in a row, such as lining up a mortgage offer in principle or having a clear idea of exactly how much you can borrow, so that you can move quickly and put in an offer when you do see somewhere you like.

Sellers

With demand remaining strong and a shortage of homes for sale, now is a great time to list your property if you are thinking of selling, particularly if your home is worth less than £250,000.

Things are likely to be trickier if you are also looking to purchase a home as well, as while your current property is likely to sell quickly, it may take longer to find a home to buy, given the current shortage of listings. As a result, do your homework before you list your property.

Co-ordinating your sale and purchase could be tricky in the current market due to the mismatch between supply and demand, so it may be worth considering doing it in stages if you have somewhere you could stay in the interim.

What’s the outlook?

While the stamp duty holiday boosted activity, demand from potential buyers remains high despite the first phase of the holiday ending, suggesting the once-in-a-generation reassessment of housing needs still has further to run.

Meanwhile, although demand may ease as the economy continues to reopen, enabling people travel more widely and enjoy leisure activities that have previously not been allowed, many workers are likely to receive clarification on whether they are going to be expected back in the office full time.

Those who are not, may decide to go ahead with a move they had been putting off until they had received clarification on this issue.

Grainne Gilmore, head of research at Zoopla, said: “The total stock of homes for sale continues to run well below historical norms, and this will underpin pricing.

“At the same time, it may also constrain potential activity, especially for buyers looking for family houses. Even so, we forecast that this year will be one of the busiest for the housing market since the global financial crisis – with 1.5 million residential transactions.”

For more advice and in depth analysis, get in touch with the team.