House prices hit all-time high in August - Nationwide

UK house prices reached a new all-time high in August thanks in part to pent-up demand following Covid-19 restrictions, according to mortgage lender Nationwide.

Prices rose 2% on the month to £224,123, following a 1.8% increase in July. This marked the biggest monthly jump since February 2004 and pushed annual house price growth up to 3.7% in August from 1.5% the month before.

Analyst had been expecting a monthly rise of 0.5% and a yearly increase of 2%.

Nationwide’s chief economist Robert Gardner said: "House prices have now reversed the losses recorded in May and June and are at a new all-time high. The bounce back in prices reflects the unexpectedly rapid recovery in housing market activity since the easing of lockdown restrictions.

"This rebound reflects a number of factors. Pent-up demand is coming through, where decisions taken to move before lockdown are progressing. Behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown.

"Our own research, conducted in May (link), indicated that around 15% of people surveyed were considering moving as a result of lockdown. Moreover, social distancing does not appear to be having as much of a chilling effect as we might have feared, at least at this point."

Looking ahead, however, Gardner pointed out that most forecasters expect labour market conditions to weaken significantly in the coming quarters as a result of the aftereffects of the pandemic and as government support schemes wind down.

"If this comes to pass, it would likely dampen housing activity once again in the quarters ahead," he said.

In July, Chancellor Rishi Sunak lifted the threshold at which buyers start to pay stamp duty from £125,000 to £500,000.

Hansen Lu, property economist at Capital Economics, said: "The rapid housing market recovery reflects a number of short-term factors, such as pent-up demand from lockdown, easing housing market uncertainty and the temporary stamp duty cut. On top of that, it might also reflect households responding to long-term factors - most notably the increase in working from home. This has probably shifted housing demand in a number of ways. For example, many office workers now want more space to work at home, but also don’t need to be located as close to work anymore.

"Looking ahead, the latest surge in house price growth will probably peter out fairly soon. After all, the economy remains fragile, while mortgage lenders remain cautious about high LTV lending - dampening demand from first-time buyers. As a result, once pent-up demand from lockdown is exhausted over the next few months, we think house price growth will also run out of steam."