U.K. House Prices Surge in August Despite Ending of Tax Cut
U.K. house prices rebounded strongly in August, suggesting underlying demand and a shortage of homes for sale are underpinning the market as a tax break on purchases is withdrawn.
The 2.1% increase, the second-largest gain in 15 years, followed a 0.6% decline in July, when the tapering of a yearlong stamp-duty holiday landed buyers of more expensive homes with a significant tax bill. The annual pace of growth accelerated to 11% from 10.5%, the figures from Nationwide Building Society show.
The increase was far stronger than predicted by economists, who assumed the phasing out of the stamp-duty holiday in July would continue to weigh on prices in August. However, other drivers of the boom remain intact. These include low borrowing costs, supply shortages, savings accumulated during lockdowns and pandemic-inspired demand for larger homes away from big cities.
What Bloomberg Economics Says...
“The tapering of a U.K. government tax break on house purchases is so far failing to make a dent on one of the world’s hottest property markets. A shift in preferences resulting from the pandemic means demand for more spacious homes continues while supply remains low. This will underpin prices and keep activity churning this year.”
--Niraj Shah, Bloomberg Economics. Click for the full REACT
Mortgage approvals -- an indicator of future activity -- fell for a second month in July but remained well above pre-pandemic levels, the Bank of England said Tuesday.
House prices stood at 248,857 pounds ($342,000) in August, an increase of almost 25,000 pounds compared with a year earlier, according to Nationwide. That eclipses the 15,000-pound maximum saving from the tax cut.
As of July 1, the maximum benefit fell sharply to 2,500 pounds as the tax-free threshold was reduced by half to 250,000 pounds. Nationwide said the August figures may reflect people looking to take advantage of the relief before it ends altogether on Sept. 30, as well as a lack of supply.
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