House Price Growth Shows Signs of Slowing

Though housing prices continue to grow month-on-month, house price growth slowed to 0.1% in September 2021 – a significant drop in growth since the 2% reported the previous month. But why is this happening to the housing market? What does it mean for homeowners, and can it be expected to continue? Below are three of the contributing factors to the market slump.

The End of Stamp Duty Relief

The major contributor to the stagnation in house price growth is the reintroduction of Stamp Duty on the 1st October. Between June 2020 and June 2021, tax relief was introduced for the first £500,000 of any property purchases, giving buyers of homes below that threshold a Stamp Duty holiday. Between June and October 2021, the relief was tapered down to a starting threshold of £250,000, and as of the 1st October 2021 Stamp Duty rates returned to pre-pandemic rates. The result of this is naturally a downswell in the volume of house purchases, after a boom of sales attempting to make the most of the tax holiday.

Extensions over Moving

Though the Stamp Duty relief is the direct cause of much of the observed boom and bust in house price growth, other factors have been at play in the long term which have also contributed. In the year before the COVID-19 pandemic, a survey found that 40% of respondents would rather extend their house than sell it. This comes from a relaxation of planning permission laws, allowing certain extensions to be built without permission. Some homeowners have elected to shirk the stress of packing, solicitors, surveys and spending time scouting for man and van services for a re-mortgage and extension project – which increases their house’s value, but decreases the amount on the market.

Rising Cost of Living

Another significant factor for the state of the housing market in general is the rising cost of living, which disproportionately affects poorer families more. With an increase in living costs comes a decrease in average savings available, meaning there are less first-time buyers on the market to create competition for certain properties.

Back on Track

However, even with all of the above taken into consideration, there is evidence that point to the slow in growth being purely temporary. The September figure is an aberration in recent market trends, bucking an astronomical boom in house prices that started in 2019. The slow in growth is itself an example of market correction, countering what is an otherwise unsustainable growth cycle which could have resulted in dangerous drops for the housing market. Ultimately, homes continue to accrue value even as growth rates temporarily slow.

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