Stamp duty break drives 8.5% annual house price jump

UK house prices rose 8.5% in 2021 as the chancellor's stamp duty holiday spurred a boom in property purchases, official figures showed.

The annual figure beat expectations after a 1.2% monthly rise in December took the rate of increase to the highest since October 2014, the Office for National Statistics said. Analysts' average forecast was for a 7.6% annual increase.

At the end of December the average house price was a record £252,000. Prices rose 8.5% in England, 10.7% in Wales, 8.4% in Scotland and 5.3% in Northern Ireland.

North West England was the English region with the biggest rise of 11.2% and London had the lowest at 3.5%. UK prices for detached houses rose 10% - double the rate for flats as buyers sought more space faced with the long-term prospect of working from home.

Chancellor Rishi Sunak increased the threshold for stamp duty to £500,000 from £125,000 early in the Covid-19 crisis to support the housing market. His move spurred a flurry of purchases as households rethought their housing needs and raced to save money before the 31 March deadline for the temporary tax break.

About 100,000 buyers could miss out on the saving because they will not complete in time for the deadline, Rightmove has predicted. Sunak has faced calls to extend the deadline at his 3 March budget to allow the logjam to clear and provide further support for the market.

Samuel Tombs, Pantheon Macroeconomics's UK specialist, said: "Prices surged in the second half of last year in response to the boost from the temporary increase in the threshold for stamp duty, and strong demand from households seeking larger properties due to the pandemic."

Market experts have predicted a sharp drop in activity after the stamp duty deadline but Rightmove said on Monday that demand was still outstripping supply, suggesting momentum may not plunge once the holiday is over.

Surveys by RICS and Halifax have painted a gloomier picture with RICS reporting agents expecting the market to get worse in the spring.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: "The chancellor could breathe some new life back into the market in the budget if he makes some kind of concession for people mid-sale when the stamp duty rules change. However, there’s no guarantee he’ll do this, and even if he does, buyers and sellers may be reluctant to get back into the race.”