"Underlying demand is likely to soften around the turn of the year if unemployment rises as most analysts expect, as government support schemes wind down."
Annual house price growth accelerated to 13.4% in June, the highest outturn since November 2004, according to the latest Nationwide house price index.
While the strength is partly due to base effects, with June last year unusually weak due to the first lockdown, the market continues to show significant momentum.
June saw the third consecutive month-on-month rise (0.7%) after taking account of seasonal effects, and prices are now almost 5% higher than in March.
Regional data for Q2 indicates that all parts of the UK saw an acceleration in annual house price growth. Northern Ireland and Wales saw the largest gains, at 14% and 13.4% respectively in Q2. By contrast Scotland saw the weakest rate of annual growth, at 7.1% closely followed by London at 7.3%.
Robert Gardner, Nationwide's chief economist, said: “Underlying demand is likely to remain solid in the near term as the economy unlocks. Consumer confidence has rebounded while borrowing costs remain low. This, combined with a lack of supply on the market, suggests further upward pressure on prices. But as we look toward the end of the year, the outlook is harder to foresee.
“Activity will almost inevitably soften for a period after the stamp duty holiday expires at the end of September, given the strong incentive for people to bring forward their purchases to avoid the additional tax. Nevertheless, underlying demand is likely to soften around the turn of the year if unemployment rises as most analysts expect, as government support schemes wind down. But even this is far from assured. Even if the labour market does weaken, there is also scope for shifts in housing preferences as a result of the pandemic to continue to support activity for some time yet."
Sundeep Patel, director of sales at Together, commented: “Another month of strong growth for house prices goes to show just how competitive the race for space has become, with buyers still eager to snap up properties at pandemic prices, ahead of the first taper for the Stamp Duty holiday extension ending this week. Today’s figures show house prices were up by 0.7% month-on-month and annual house prices rose by a staggering 13.4% – the highest level recorded since November 2004.
“That said, from the second half of the year onwards, we are expecting to see things start to slow down as potential buyers adapt to this next phase of the pandemic, without Government support and tax breaks. Whatever property financing is needed in the future, lenders who can offer a degree of flexibility are going to be highly sought after, as people look to pursue property plans against their changing needs in the market.”
Founder and CEO of GetAgent, Colby Short, added: “Properties are going under offer at an alarming pace at the moment and buyers continue to swarm the market despite the dwindling hopes of a stamp duty reprieve. There also remains a severe shortage of stock to meet this demand and so sellers are achieving a very good price for their property, often at, or in excess of the original asking price.
"While a reduction in buyer demand is expected towards the back end of this year, the scales will remain firmly tipped in favour of sellers due to the imbalance between supply and demand and so we should see a buoyant level of property price appreciation remain for the duration of the year.”