What’s next for UK house prices after post-stamp duty holiday dip?

As new ONS data shows that house price growth dipped in October, Sean LaPointe takes a look at what could be next for house prices.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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Annual UK house price growth shrank slightly in October following the phasing out of the government’s Stamp Duty holiday at the end of September. That’s according to new figures from the Office for National Statistics (ONS)

But while prices have fallen from their previous highs after the expiry of the tax break, the drop has not been as severe as some expected. House prices remain well above their previous June highs.

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But what’s the outlook for the future? And should aspiring buyers bite the bullet in the current market or hold off? Let’s take a look.

[top_pitch]

What has happened to house prices?

Hargreaves Lansdown looked at the latest UK house price index from the ONS and highlighted the following.

  • Average UK house prices were up 10.2% in the year to October. This is down from 12.3% in September.
  • The average house price fell back slightly from a record high of £271,000 to £268,000.
  • Annually, average prices are up £24,000.
  • Annual growth was highest in the East Midlands at 11.7% and lowest in London at 6.2%.
  • Prices are lowest in the North East at an average of £148,000.
  • Detached house prices were up 14%, while flats were up 6.6%.

What’s likely to happen to house prices next?

Commenting on these figures, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said, “The post-Stamp-Duty-holiday comedown hasn’t been too depressing for house prices.”

She adds that while we are likely to see growth continue to slow over the coming months, “There will still be structural pressures in the market keeping a floor under prices”.

The pressures Coles is referring to include:

1. The race for space

According to Coles, the race for space is far from over. There is still high demand for larger homes, as evidenced by the skyrocketing prices for detached houses outside of London. 

2. Low mortgage rates

Though mortgage rates have risen recently – and are likely to rise further after the Bank of England raised the base rate to 0.25% – there are still some relatively low-cost deals available. This could help to maintain demand.

3. Lockdown savings

People were able to save more during lockdown. This means that many are still in a position to afford a bigger deposit as well as the costs of moving.

4. The shortage of homes for sale

The shortage of homes on the housing market means that there are more buyers vying for fewer available properties. As a result, prices are likely to remain high.

[middle_pitch]

What’s the best move for aspiring buyers in the current market?

No one can predict with 100% certainty what will happen to house prices in the future.

Some buyers may be hoping that prices will dip in 2022 and that they might therefore be able to get a good deal next year. However, there is no guarantee that this will happen.

If the house you want is currently available and you can afford it, it may be safer to bite the bullet rather than waiting and hoping prices fall in the future, which is far from guaranteed.

However, if you are not ready or able to buy right now, perhaps because you have been priced out of the market, it’s a good idea to focus on getting your finances in order.

For example, you could use this time to improve your credit score and save more money for your deposit. A higher credit score increases your chances of qualifying for a cheaper mortgage deal and the larger your deposit, the more purchasing power you’ll have in the future.

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