House prices tick up in July, while homebuyers save £275m on stamp duty

4th August 2015


House prices rose by 0.4% in July, taking the year-on-year increase up to 3.5%, the latest figures from Nationwide Building Society reveal.

The average UK property price reached  £195,621 compared to £188,949 a year ago.

July’s modest month-on-month increase follows a surprise dip of 0.2% in Jun, while the recovery in year-on-year growth follows a two-year low of 3.3% in June.

Robert Gardner, Nationwide’s chief economist, says: “After moderating over the past twelve months, there are tentative signs that annual house price growth may be stabilising close to the pace of earnings growth, which has historically been around 4%.

“This would bode well for a sustainable increase in housing market activity, though whether this will be maintained will depend on whether building activity can keep pace with increasing demand.”

Gardner says that the outlook on the demand side remains encouraging. Employment growth has remained relatively robust in recent quarters, and, after a prolonged period of subdued growth, wage growth is also edging up. With consumer confidence buoyant and mortgage rates still close to all-time lows, demand for housing is likely to firm up in the quarters ahead, he predicts

However, he warns: “It remains unclear whether activity on the supply side will catch up with demand.  The number of new homes under construction has started to pick up, albeit from historically low levels, and further increases are required if a sustainable recovery in the housing market is to be maintained over the longer term.”

Gardner has also been observing the impact of changes to Stamp Duty introduced in the Autumn Statement of December last year, which he believes are having a positive effect on the market.

The changes meant a shift to purchasers paying the marginal tax rate on the relevant elements of the purchase price as the old ‘slab structure’ was abolished.

He says: “The slab structure used to result in significant distortions with a clustering of transactions at the tax thresholds. Under that system, paying £1 more would result in significant additional stamp duty being due (for example, paying £1 over the £250,000 or the £500,000 threshold used to trigger an additional £5,000 of SDLT).

“Even though the change to SDLT only came into effect six months ago, the impact on the pattern of transactions is already evident, with much less bunching of transactions around the £125,000, £500,000 and in particular the £250,000 price points.

“Moreover, based on the first six months of transactions data from the Land Registry, nearly 235,000 purchasers in England and Wales have paid less tax under the new regime, with an average benefit of c£1,800.”

There are regional differences in the impact of the changes.

Gardner says: “The benefits are greatest in the South of England where average house prices are higher. We estimate that around 85% of transactions in London, the South West and South East have benefited from the changes, compared with around 55% in the North, Yorkshire and Humberside, and the North West of England.

“However, we estimate that around 5,000 (2%) of purchasers paid more (two thirds of whom were in London), with an average of £28,000 more tax being paid compared with the old system.

“On balance (considering the net effect of those paying more and those paying less), we estimate that the changes have resulted in around £275m less tax being paid than would have been the case under the old stamp duty regime.”

Howard Archer, chief UK and European economist at IHS Global Insight, says: “The Nationwide continues to portray substantially milder house price inflation than the Halifax. Later data from the Halifax shows house prices jumping 1.7% month-on-month in June causing them to be up 9.6% year-on-year in the three months to June (the highest rate since the three months to September 2014).

“This highlights the need to not pin too much weight on one particular house price survey or measure, but to try and take an overall view from the data.

“We currently expect house prices to rise by 6% in 2015 and then by a further 5% in 2016.”

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