New analysis carried out by Knight Frank has highlighted the areas which have seen the biggest increase in the value of their housing stock over the course of the pandemic, with the top three largest rises over the period all found in north-west England: namely Rossendale (24.2%), the Wirral (21.6%) and Liverpool (21.6%).
UK house price growth is still holding up surprisingly well despite the stamp duty holiday recently ending just as inflationary pressures began to multiply and the furlough scheme came to a close.
Earlier this month, in its latest house price index, Nationwide – one of the UK’s biggest lenders – revealed that UK prices rose 9.9% in the year to October, a figure that was effectively unchanged from September, the final month of the stamp duty holiday. But why is the housing market apparently defying economic gravity?
Knight Frank says demand is stronger than normal, bolstered by frustrated buyers who were unable to move during the stamp duty holiday and those who waited for calmer conditions after its conclusion. The firm also argues that supply has been kept in check for various reasons.
In its most recent report, Nationwide also reported that the average UK price surpassed £250,000 in October for the first time.
And now new analysis from Knight Frank has shown that the total value of the housing stock in England and Wales was £7.68 trillion in July 2021, an uplift of £720 billion from March 2020, the month the pandemic fully hit UK shores, when the total value was £6.96 trillion.
The Knight Frank study, which places a number on the total value of all private housing, factors in exchange prices as well as changes to house prices, with a higher overall figure potentially reflecting a larger number of households in a given local authority as well as higher-value properties.
It found that the combined housing stock in the top ten local authorities by value broke through the trillion-pound barrier over the course of the pandemic, rising to £1.007 trillion from £978 billion – but increases were not witnessed everywhere.
The highest total in July this year was £157.8 billion in the central London borough of Westminster, down by 10.1% from March 2020. This fall was the highest in England and Wales but could be explained away by the fact that the area has a high proportion of flats (typically of lower value) and the fact fewer international buyers were able to travel to the UK with strict restrictions in place.
It was, though, one of only three local authorities in England and Wales that saw the value of its housing stock fall during the pandemic, alongside Lambeth (-2.2%) and Wandsworth (-1.1%).
Knight Frank says there were other interesting changes in the top ten most valuable areas over the course of the pandemic, too, with Cornwall leapfrogging Richmond-Upon-Thames into eighth place while Leeds replaced Ealing at number ten.
The global property consultancy said both changes can be explained by the growing demand for space, with Yorkshire, in particular, benefitting heavily from this trend.
Despite strong house price inflation across the UK, Knight Frank is warning that two things will curtail this strong level of growth, with the first being rising interest rates. While the Bank of England held the base rate at 0.1% last week, many believe a rise – and further rises in 2022 – are inevitable to combat soaring inflation.
However, Knight Frank said it would be wrong to overstate the short-term impact on the UK housing market. Rates were 0.75% before Covid struck and any effect is likely to be limited while rates remain below this level.
The firm argues that what’s different between now and early 2020 is the presence of inflationary pressures, which could cause demand to begin fraying around the edges ‘depending on how elastic the definition of “transitory” becomes’.
Longer term, Knight Frank says there will need to be a readjustment as rates normalise, a process that has been delayed by the pandemic.
More than 3.5 million first-time buyer mortgages have been issued since the base rate dropped to 0.5% in March 2009 to protect the economy during the global financial crisis. Knight Frank says that is a large group of homeowners who don’t know what it’s like when interest payments rise meaningfully.
The other thing to watch closely, according to the agency, is supply, which will put downwards pressure on prices as it increases.
James Cleland, head of Knight Frank’s Country business, says owners are already positioning themselves for 2022. “We are starting to see a notable increase in the number of owners contacting us with a view to listing their property next spring. For shrewd sellers, the best time to put their property on the market is likely to actually be January when there are a large number of buyers around.”
With this in mind, Knight Frank says it’s a reasonable assumption, therefore, that fewer parts of the country will be experiencing double-digit house price growth this time next year.
