UK house price growth slowed in March, according to a leading mortgage provider, as analysts predicted the market would remain buoyant due to government stimulus measures boosting property demand.
House prices fell 0.2 per cent month on month in March, compared with a 0.7 per cent rise in February, the Nationwide House Price Index, released on Wednesday, found. Year on year, house prices were 5.7 per cent higher, down from 6.9 per cent last month.
However, analysts said the monthly decline was largely due to the planned end of a tax break on property transactions, which has since been extended, and government measures would prevent a sustained slowdown.
Property prices have defied the economic contraction from Covid-19 and accelerated this year, in part thanks to a suspension of the stamp duty tax for new purchases up to £500,000 and a rise in demand as people reassessed their housing needs during the coronavirus lockdown.
Robert Gardner, Nationwide’s chief economist, said the housing market slowdown reflected a “softening of demand” ahead of the planned end to the stamp duty holiday in March, adding that the market should recover now thanks to new stimulus measures.
“Recent signs of economic resilience and the stimulus measures announced in the Budget, including the extension of the furlough scheme and the stamp duty holiday, as well as the introduction of a mortgage guarantee scheme, suggest that housing market activity is likely to remain buoyant over the next six months,” he said.
The Nationwide index is based on mortgage offers by the building society, so is a relatively reliable indicator of final agreed prices. But because property transactions take several months to complete, it does not reflect current asking prices or the impact of more recent government measures.
Samuel Tombs, chief UK economist for Pantheon Macroeconomics, said the market would “remain hot in Q2” thanks to the stamp duty holiday extension.
“We think that year-over-year growth in house prices will cool to about 2 per cent by the end of this year,” he added.
However Howard Archer, the chief UK economist for EY ITEM Club, said the Nationwide data added to evidence that a turbocharged market could be “coming off the boil”.
He pointed to figures from the Royal Institution of Chartered Surveyors which showed both buyer inquiries and new properties fell for the second month running in February, after rising through the latter half of last year.
“The strengthening of the housing market has been excessive given economic fundamentals and the strength of prices will prove unsustainable,” Archer said, predicting that prices would likely remain flat across the coming year.
Nationwide’s figures highlighted regional variations, with prices in the North West rising fastest, up 8.2 per cent year on year, and slowest in London, where they rose 4.8 per cent compared to 6.2 per cent in the fourth quarter of 2020.
Activity in the housing market over the next year depended on a continued economic recovery and labour market, Gardner said: “The longer-term outlook remains highly uncertain.”