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U.K. house prices saw their biggest growth since 2016 in August, climbing to a record high, according to Britain’s longest-running barometer of the property market.
The Halifax House Price Index, which is run by analysis company IHS Markit, found that U.K. house prices grew by 5.2% in August compared to the same month last year. It marks the strongest annual growth in prices since the end of 2016.
The price of the average U.K. house hit £245,747 ($324,241) – the first time on record that prices have surpassed £245,000. It represents month-on-month growth of 1.6% from July to August, a touch higher than the 1.5% growth forecasted by economists in a Reuters poll.
Russell Galley, managing director at Halifax, said the surge in property market activity had driven up house prices as coronavirus lockdown measures eased in the summer months.
This had been “fueled by the release of pent-up demand, a strong desire amongst some buyers to move to bigger properties, and of course the temporary cut to stamp duty,” he said in a statement.
In July, U.K. Finance Minister Rishi Sunak announced a holiday from property tax, known as stamp duty, on properties worth up to £500,000 in an attempt to stimulate the housing market.
However, Galley said it was “highly unlikely that this level of price inflation will be sustained,” despite a boost from these positive factors in the short-term.
The U.K.’s macroeconomic picture should become clearer in the next few months, he added, as the government’s economic support measures wind up and the “true scale of the impact of the pandemic on the labour market becomes apparent.”
“Rising house prices contrast with the adverse impact of the pandemic on household earnings and with most economic commentators believing that unemployment will continue to rise, we do expect greater downward pressure on house prices in the medium-term,” Galley said.
Defying ‘economic reality’
Jonathan Hopper, CEO of Garrington Property Finders, said that parts of the property market were shifting from “frenetic to the frothy.”
“Two months of surging prices, in what the Halifax itself has described as a ‘mini-boom’, has powered the property market to a golden summer,” he said in a statement.
Indeed, Hopper said the data looked positive on the surface, with a growing number of homes for sale and a rebound in mortgage approvals.
In data released last week, the Bank of England said the number of mortgages approved had risen from 39,900 in June to 66,300 in July, though this was still 10% lower than the 73,700 housing loans approved in February, pre-pandemic.
Rural and coastal homes were proving particularly popular, Hopper said, with many people reassessing what they want from their home as working remotely has become the “new normal” amid the pandemic.
However, he argued that the “resulting momentum on prices is pushing the market ever more out of kilter with the wider economy” and that it could not “defy economic reality for long.”
“That disconnect will be put to a stern test if the Autumn brings further fragility to the economy and again in March when the stamp duty holiday comes to an end,” Hopper added.