Opinion: Buy, buy, buy

UK house prices have once again soared to a new all-time high as people across the country look for a change in scenery. Meanwhile, the rest of the economy is on fire. Richard Dawson asks, when will the housing market bubble burst?

The UK housing market continues to be divorced from the realities of the coronavirus economy, as the latest report from Nationwide reveals that house prices have risen by 5.8 per cent this year.

That takes the average cost of buying a British home to £227,826 – a new all-time high.

Nationwide’s latest figures show that prices rose by 0.8 per cent in October, down slightly from 0.9 per cent in September but still stunningly high in the current climate.

The housing market is one of the only corners of the UK economy to be enjoying a mini boom at the moment, with most other sectors and industries well below where they were pre-pandemic.

A number of factors are behind the outperformance.

First and foremost, the Government’s stamp duty land tax holiday for homes under £500,000 is having a marked effect, offering an incentive of around £2000 to the average homebuyer.

Stamp duty relief will last until March 31, 2021, and will cost the Exchequer around £1.3 billion, although that figure could be higher given the flurry of activity we’ve seen in the months since it was announced. The holiday was first introduced by former Chancellor Alistair Darling following the global financial crisis in 2008 and has since become a tried-and-tested way of stimulating property demand.

Perhaps the most significant factor though is the behavioural shifts causing many people to reassess their housing needs and preferences.

Nationwide research conducted in September found that 10 per cent of people were moving as a direct result of the pandemic, with a further 18 per cent considering a move for the same reason.

The survey of more than 3000 people aged 18 and over also found that of those moving or considering a move, 35 per cent were looking to move to a different area, while 30 per cent were doing so to access a garden or outdoor space more easily.

A majority of respondents were looking to move to less urban areas, with this trend increasingly evident among older age cohorts.

It’s easy to see the appeal. Working from home means that many people no longer need to be located in urban areas and can take advantage of being closer to the coast or countryside.

A densely populated city centre full of shops, bars, cafes and restaurants has also lost some of its allure at a time when many people are looking to avoid close personal contact.

That’s to say nothing of the fact that looming coronavirus restrictions could mean the closure of retail and hospitality businesses, potentially leaving urban dwellers without much to do for entertainment.

This reorientation of housing wants and needs is having a profound effect on the housing market, as the Nationwide Index clearly shows.

Bank of England statistics for September also show that mortgage approvals have increased at the fastest rate since September 2007, with 91,500 would-be homeowners accepted during the month.

Correspondingly, net mortgage borrowing totalled £4.8 billion in September, up by more than half from the £3.0 billion figure for August.

The question is, when will it end?

Soon, by the looks of it.

Core economic indicators are frustratingly lagging behind the pace at which conditions are changing in the UK economy.

But even looking at GDP and labour market statistics for August – the latest available – you can see how the current house price boom cannot be sustained.

GDP grew by just 2.1 per cent in August, down from 6.4 per cent in July and well below expectations given the impact Eat Out to Help Out was supposed to have on the month.

The unemployment rate also rose to 4.5 per cent in the three months to August, a modest rise from the average of 3.8 per cent in 2019, but this is just the tip of the iceberg with the furlough scheme due to end tomorrow (October 31).

The dire short-term economic outlook should mean that the housing market bubble bursts in the months ahead, bringing prices back in line with other COVID-hit sectors.

But the proof will be in the pudding as they say because, at the moment, there seems to be no sign of a slowdown.