The average UK house price dropped by 0.9% in July, the largest monthly decline since August 2018, according to the latest report from Halifax. The lender said that the annual growth rate slowed to 1.7%, the lowest since March 2020, as the end of the stamp duty holiday and the rise in Covid-19 cases dampened the demand for property.
Stamp duty holiday impact
The stamp duty holiday, which was introduced in July 2020 to boost the housing market during the pandemic, offered buyers a tax break of up to £15,000 on properties worth up to £500,000. The scheme was extended until the end of June 2021, but the threshold was reduced to £250,000 from July 1. It will return to its pre-pandemic level of £125,000 from October 1.
Halifax said that the stamp duty holiday had a significant impact on the housing market activity and prices, as buyers rushed to complete their transactions before the deadline. The lender estimated that more than 1.3 million buyers benefited from the tax relief, saving an average of £5,000 each.
However, as the scheme winds down, Halifax said that the demand for property has cooled off, leading to a slowdown in price growth and a drop in sales volumes. According to HM Revenue and Customs, residential property transactions fell by 62% in July compared with June, and were 2% lower than a year ago.
Covid-19 cases and economic uncertainty
Another factor that may have contributed to the decline in house prices is the rise in Covid-19 cases and the uncertainty over the economic outlook. The UK reported more than 30,000 new infections per day in July, prompting some restrictions to remain in place and some consumers to adopt a more cautious attitude.
Halifax said that consumer confidence fell by four points in July, reversing the gains made in June. The lender also noted that inflation rose to 2.5% in June, above the Bank of England’s target of 2%, and that unemployment increased by 0.1 percentage point to 4.8% in the three months to May.
Halifax said that these factors may have dampened the appetite for moving home and reduced the affordability of property for some buyers. The lender added that the supply of homes for sale remains tight, as sellers are reluctant to put their properties on the market amid the uncertainty.
Regional variations and outlook
The Halifax report also showed that there were regional variations in house price performance, with some areas seeing stronger growth than others. The North East recorded the highest annual increase of 11%, followed by Wales with 9.4% and Yorkshire and the Humber with 8.4%. London was the only region to see a year-on-year decline of 0.6%, reflecting its higher exposure to international travel restrictions and changes in working patterns.
Looking ahead, Halifax said that it expects house prices to remain broadly stable over the next few months, as the impact of the stamp duty holiday fades and the economic recovery continues. The lender said that low interest rates, high savings levels and strong demand for more space will support the market, but warned that rising inflation, unemployment and tax changes could pose downside risks.
Russell Galley, managing director of Halifax, said: “We believe structural factors have driven record levels of buyer activity – such as the demand for more space amid greater home working. These trends look set to persist and the price gains made since the start of the pandemic are unlikely to be reversed once the remaining tax break comes to an end later this month.”
