"To a large extent, the slowdown probably reflects a tapering of demand ahead of the end of the stamp duty holiday"
The data shows that January saw the annual rate of house price growth slow to 6.4%, from 7.3% in December. House prices fell by 0.3% month-on-month, after taking account of seasonal effects – the first monthly decline since June.
Robert Gardner, Nationwide's chief economist, said: “To a large extent, the slowdown probably reflects a tapering of demand ahead of the end of the stamp duty holiday, which prompted many people considering a house move to bring forward their purchase. While the stamp duty holiday is not due to expire until the end of March, activity would be expected to weaken well before that, given that the purchase process typically takes several months (note that our house price index is based on data at the mortgage approval stage).
“The typical relationship between the housing market and broader economic trends has broken down over the past nine months. This is because many peoples’ housing needs have changed as a direct result of the pandemic, with many opting to move to less densely populated locations or property types, despite the sharp economic slowdown and the uncertain outlook.
“Indeed, the total number of mortgages approved for house purchases in 2020 actually exceeded the number approved in 2019, and house price growth ended 2020 at a six-year high, even though the economy was probably around 10% smaller than at the start of 2020, with the unemployment rate around a percentage point higher.
“Looking ahead, shifts in housing preferences are likely to continue to provide some support for the market. However, if the stamp duty holiday ends as scheduled, and labour market conditions continue to weaken as most analysts expect, housing market activity is likely to slow, perhaps sharply, in the coming months."
Mark Harris, chief executive of mortgage broker SPF Private Clients, commented: "The runaway housing market is starting to show the first indications of taking a foot off the gas. The annual rate of growth slowed ‘modestly' in January, according to Nationwide, while prices fell 0.3 per cent month-on-month. It comes after a stonking performance in 2020 when the remarkable resilience of the market in the face of the pandemic was evident, despite the first national lockdown.
"The next few months will be interesting. As we head towards the deadline for taking advantage of the stamp duty holiday, lenders are navigating a fine line between the need for volume and market share versus risk appetite and service. There is a certain amount of chopping and changing on rates and products as lenders deal with unprecedented circumstances. However, with interest rates unlikely to rise anytime soon, mortgage rates should remain competitive."
Lucy Pendleton, property expert at James Pendleton estate agents, added: “Forget the mild monthly price decline, this is hardly the performance of a market in peril. The fact that most buyers agreeing purchases now will almost certainly miss out on stamp duty relief has barely moved the needle so there are wider factors at work here and chances are they’ve been cooking up a storm all along.
“Just look at what this market has weathered. After a year in which it has faced a stubborn pandemic, associated economic chaos and tightening borrowing criteria for first-time buyers, it has still surged beyond anyone’s expectations. Even in London, which can swing earlier and further than other regions, the pendulum is showing a reluctance to swing to the other extreme. Achieved sales prices have softened but it hasn’t been enough to send badly squeezed first-time buyers stampeding back to estate agents’ windows.
“Expect low interest rates and vaccine optimism to continue to play a commanding role in what happens over the next few months, as all eyes turn to unemployment and the end of the furlough scheme. Those buyers who are confident in their income, however, will continue to make that felt and there are still plenty of them around.”
