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House price growth slows to 6.4%

Annual house price growth reached 6.4% in January 2021, representing a decrease from 7.3% in December, Nationwide’s House Price Index has found.

Prices averaged at £229,748 in January, after falling by 0.3% month-on-month.

Robert Gardner, chief economist at Nationwide, said: “To a large extent, the slowdown probably reflects a tapering of demand ahead of the end of the stamp duty holiday, which prompted many people considering a house move to bring forward their purchase.

“While the stamp duty holiday is not due to expire until the end of March, activity would be expected to weaken well before that, given that the purchase process typically takes several months (note that our house price index is based on data at the mortgage approval stage).

“The typical relationship between the housing market and broader economic trends has broken down over the past nine months. This is because many peoples’ housing needs have changed as a direct result of the pandemic, with many opting to move to less densely populated locations or property types, despite the sharp economic slowdown and the uncertain outlook.

“Indeed, the total number of mortgages approved for house purchases in 2020 actually exceeded the number approved in 2019, and house price growth ended 2020 at a six-year high, even though the economy was probably around 10% smaller than at the start of 2020, with the unemployment rate around a percentage point higher.”

There was a slight increase in the home ownership rate in 2020, to 64.6% from 63.8% in 2019, the English Housing Survey published by the Ministry of Housing, Communities & Local Government (MHCLG) found.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “The runaway housing market is starting to show the first indications of taking a foot off the gas. The annual rate of growth slowed ‘modestly’ in January, according to Nationwide, while prices fell 0.3% month-on-month.

“It comes after a stonking performance in 2020 when the remarkable resilience of the market in the face of the pandemic was evident, despite the first national lockdown.

“The next few months will be interesting. As we head towards the deadline for taking advantage of the stamp duty holiday, lenders are navigating a fine line between the need for volume and market share versus risk appetite and service.

“There is a certain amount of chopping and changing on rates and products as lenders deal with unprecedented circumstances. However, with interest rates unlikely to rise anytime soon, mortgage rates should remain competitive.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “The slowing of the pace of prices rises is no surprise and is what we have been seeing on the high street since Christmas.

“The market is catching up with itself as the chances of buyers and sellers beating the stamp duty deadline by the end of March recede, even if a withdrawal is phased, as seems possible now.

“Nevertheless, we expect a softening in prices and transaction numbers rather than a major correction. Most sales arranged are progressing to exchange of contracts without renegotiation, and movement restrictions only build up more pent-up demand, to say nothing of the shortage of listings, which only increase upward pressure on price.

“Those likely to miss out on the stamp duty saving due to backlogs tell us they would prefer to compromise on price rather than miss out on the property they have set their hearts on.”