U.K. House Prices Jump Most Since 2004 Before Tax-Break Deadline

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U.K. house prices grew at their fastest annual pace for more than 17 years in June as buyers rushed to seal deals in time to benefit from a government tax break.

Property prices rose 13.4% from a year earlier, the biggest gain since November 2004, Nationwide Building Society said Tuesday, a day before the Treasury is due to begin phasing out a stamp-duty holiday worth as much as 15,000 pounds ($21,000). A separate report from the Bank of England showed mortgage approvals rose unexpectedly in May and consumers increased unsecured borrowing for the first time since last summer.

The withdrawal of relief is expected to slow the momentum that has helped the U.K. housing market defy the worst economic slump in 300 years, as the pandemic prompted buyers to snap up homes with more space away from urban areas. Values rose 0.7% from May, their third consecutive increase.

“June will probably mark the peak in annual growth,” said Niraj Shah, European economist at Bloomberg Economics. “Monthly price increases are unlikely to match those seen later in 2020, with many buyers having already brought forward purchases.”

U.K. House Prices Jump Most Since 2004 Before Tax-Break Deadline

The BOE report showed:

  • Mortgage approvals rose to 87,545. Economists were expecting a slight decline to 85,800.
  • The value of loans made surged more than expected to 6.6 billion pounds, double the level of the previous month. Approvals usually translate into loans after a few months
  • Unsecured credit extended to consumers rose by 280 million pounds

Nationwide said house prices stood at a record 254,432 pounds in June. Regional data showed all parts of the U.K. saw accelerating prices, the largest of which were in Northern Ireland and Wales with 14% and 13.4% respectively. Scotland and London were the weakest performing regions, though the capital still saw a pickup in growth to 7.3% from 4.8% in the previous quarter.

U.K. House Prices Jump Most Since 2004 Before Tax-Break Deadline

The findings were reinforced by a separate report from Zoopla, which painted a picture of surging demand, dwindling supply and properties selling in the shortest time in five years. Rochdale and Bolton in northern England and Hastings on the south coast recorded the biggest price gains of 65 towns and cities monitored.

“Prices are rising fastest in the most affordable markets as activity continues at elevated levels among first-time buyers and movers looking for more space or a lifestyle change,” said Grainne Gilmore, head of research at the property website.

The Treasury will phase out the tax holiday starting on June 30, and it will end altogether on Sept. 30. However, agents agents expect the market to remain buoyant as the economy reopens and millions of people move back into work.

The boom, which has been partly fueled by cheap borrowing costs, is now raising concerns at the BOE. Chief Economist Andy Haldane, who steps down from his post this month, has warned of growing inequality between homeowners and younger people unable to afford to get onto the property ladder.

U.K. House Prices Jump Most Since 2004 Before Tax-Break Deadline

Jon Cunliffe and Dave Ramsden, who both serve as deputy governors for the central bank, said after Nationwide’s report last month that policy makers were watching house prices carefully as they weigh whether to pare back stimulus for the economy.

“Underlying demand is likely to remain solid in the near term as the economy unlocks,” said Robert Gardner, Nationwide’s chief economist. “Consumer confidence has rebounded while borrowing costs remain low. This, combined with a lack of supply on the market, suggests further upward pressure on prices. But as we look toward the end of the year, the outlook is harder to foresee.”

©2021 Bloomberg L.P.

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