Nationwide: Stamp duty changes are imminent, but house prices are rising for the sixth consecutive month

Although stamp duty changes and additional affordability pressures may pose challenges later this year, house prices continued to rise in February

In February, the UK real estate market maintained its upward trajectory in anticipation of the approaching stamp duty deadline.

According to the most recent data from Building Society Nationwide, house prices increased by 0.4 percent per month and 30.9 percent annually. This contrasted with growth rates of 0.1 and 4.1 percent in January, respectively. February is the sixth consecutive month that the monthly figure has increased.

Lower mortgage rates and lessening affordability pressures have begun to entice some buyers back to the market, which is contributing to the market's resilience. Prospective homeowners have more purchasing power now that interest rates are declining and wage growth exceeded inflation in home prices last year.

Nevertheless, difficulties still exist. When buying a home, the typical first-time buyer now pays five times their yearly salary, according to research released earlier this year by Nationwide. The long-term average of 3.9 times earnings is much lower than this.

Continuous pressures on affordability are probably going to keep home prices in check throughout the year, especially after stamp duty thresholds drop at the beginning of April, making it more costly for many people to buy a home.

In the upcoming months, household budgets will also suffer because inflation is predicted to increase to 3 percent in the third quarter. Additionally, a number of bill increases that impact everything from energy bills to council tax are scheduled for April. Additionally, adjustments to employers' National Insurance contributions may slow wage growth starting on this date.

Robert Gardner, Nationwide's chief economist, commented on the most recent data, saying: "Despite persistent affordability issues, housing market activity has held up well in recent months. In fact, overall housing transactions increased by 14% in the second half of 2024 compared to the same period in 2023, indicating a discernible improvement.

"Total transactions for 2024, however, were only slightly (6 percent) less than those that existed prior to the pandemic in 2019."

A "jump of transactions in March" and a "corresponding period of weakness in the following months" are anticipated as a result of impending stamp duty changes, he continued.

What is causing the housing market to be so active?

With mortgage completions for 2024 only 5% below 2019 levels, data from Nationwide indicates that first-time buyer transactions continued to improve throughout the year.

According to Gardner, "this represents a solid performance, given the interest rate environment." For instance, borrowers who have a 25% deposit on a five-year fixed mortgage now pay about 4 percent, up from about 2 percent in 2019.

Activity has also been significantly influenced by cash transactions, which are currently 2% higher than they were before the pandemic.

The chart below illustrates how the recovery in buy-to-let sales has been more subdued. Given the recent reductions in tax breaks and increases in stamp duty rates for landlords, this may not come as a surprise. However, since some landlords make cash purchases, not all buy-to-let transactions are necessarily included in the data.

Purchases of homes by type of buyer.

Although overall activity levels have been strong in recent months, sellers should exercise caution when determining their asking price because of impending headwinds (Image credit: Nationwide). Changes in stamp duty combined with the growing cost of living are probably going to hinder the recovery in terms of transaction volumes.

Rightmove property expert Colleen Babcock stated earlier this month that new sellers are already beginning to exercise some price restraint. "Agents report that some of the steam is coming from new sellers price expectations to fit the changing market conditions, which is a sensible reaction to attract buyer interest and will also help to support activity levels," she said.