The COVID-19 pandemic has changed many aspects of our lives, from an increase in remote working to rising unemployment. However, one of the most significant changes within the country can also be found in our housing market, as seen by the increase in property prices.
The Office for National Statistics has revealed that the average cost of a house in the UK has risen to £276,755. The price change, which was recorded by HM Land Registry (HMLR), showed a rise of 10.9% from the previous year, with a monthly change of around 0.5% each month.
During the same period, Wales saw the highest annual increase of the UK’s regions with an increase of 14.2%, as the average house in the country cost rose to £205,000 in February 2021. England saw prices increase by an average of 10.7% as the average house reached a record-breaking £296,000, whilst Scotland saw an increase of 11.7% to £181,000. Northern Ireland’s data shows that the country had the lowest average increase of 7.9%, which increased house prices to an average of £159,000.
During the second half of 2020, the average price of houses in the UK saw a rapid acceleration. This followed a decline during the previous part of 2020 following the impact of coronavirus on the housing market. The trend continued into 2021 and 2022 when the average house price in the UK saw an increase of £2,000 from £275,000 in January 2022 to almost £277,000 in the following month.
First-time buyers in Great Britain paid an average of £230,593 for a property in February 2022, which was an annual change of 10.1%. Former owner-occupiers paid an average of £324,691 in the same month, which was a change of 11.9% from the previous year. These statistics exclude Northern Ireland as the data for buyer statuses in the country was not available.
Why have house prices risen in the UK?
The growth in 2020 can largely be attributed to the July tax changes made to property purchases in the UK. In England and Northern Ireland, the tax threshold was changed to £500,000, with properties valued at less than this incurring no tax. In the same period, the threshold was changed to £250,000 in Scotland and Northern Ireland. The tax changes meant that sellers were able to request higher prices for the properties, due to the overall cost that buyers usually have to pay having been reduced.
The Stamp Duty holiday was also extended in England and Northern Ireland until the end of June 2021. After this point, the threshold was lowered to £250,000 until 30 September 2021, when the Stamp Duty thresholds reverted to what they were before July 2020. Scotland’s tax holiday ended on 31 March 2021, whilst Wales’ ended a couple of months later on 30 June 2021.
The effect of these tax holidays had a major impact on the property market as many buyers rushed to make a property purchase in the given window of time. March 2021 was the original deadline for the Stamp Duty holiday, which may be why there was an increase in property purchases during that month. This increase was replicated again in June 2021, when the tax holiday on property purchases was due to finish at the end of the month in England, Wales and Northern Ireland. Following this, property prices increased again in September 2021 when the final tax holidays finished in England.
These tax breaks created a chain reaction in the UK, with house prices reaching their record levels in February 2022. It was estimated that there were 112,240 transactions for residential properties in the UK in this month alone. Whilst this figure was 20.8% lower than that of the previous year, it was 4.4% higher than the number of sales in January 2022.
In terms of a non-seasonally adjusted basis, there was an increase of 0.5% in the average house price between January and February 2022. However, there was zero growth the previous year between January and February 2021. On a seasonally-adjusted basis, these figures showed an increase of 0.8% between January and February 2022, which followed the previous month’s increase of 1.1%.
How do house prices vary across UK regions?
According to the UK house prices data, London has the lowest annual price growth of anywhere in the UK. The capital city has annual growth averaging 8.1%, which is 2.8% lower than the national average. London regularly ranks in the top 10 least affordable places to live in the UK and was ranked eighth place in 2022.
Despite having the country’s lowest annual growth, the data from the UK house price index shows that London is still the most expensive region to live in in the UK. In February 2022, the average property value in London was £530,000, which is over £253,000 more than the nation’s average.
Within England, the trend of rising house prices is clearly shown in the southern regions. South West and East have the highest growth in annual house prices, with an average increase of 12.5% from the previous year to February 2022. In January 2022, the average prices showed a 12-month increase of 11.5% in the South West and 11.4% in the Eastern region of the country.
The South East saw the third-highest average price growth, with a 12-month change of 12%. This annual price rise was lower than 11% in all other regions of the UK, with a change of 10.9% in the East Midlands and 10.2% in the North West of England. The West Midlands saw a slightly lower change of 10%, which was closely followed by the 9.5% change in Yorkshire and The Humber. There was a 9.4% in the North East, which concluded the evidence that the northern regions in England had the slowest rise in average house prices.
The North East also has the lowest average house price in England, with figures showing in February 2022 that properties cost an average of £152,551 in the region. Yorkshire and The Humber were found to have average property prices of £198,599 in the same month, which makes these the only two regions in the UK to have averaged under £200,000.
After London, the South East had the second-highest average house price in England. In February 2022, property prices in the region reached an average of £380,528, whilst houses in the East Midlands had a recorded average of £235,993. The South West had a record-breaking average house price of £312,697, which was an approximate rise of £42,000 from the previous year.
The regions in England didn’t experience a significant monthly price fall during the global coronavirus pandemic, except for the decrease from March to April 2020. However, this dip soon disappeared in the following months, with property prices in May 2020 soon rising above what they had been before COVID-19 hit.
Have the average prices of different property types changed in the UK?
Properties in the UK have seen a combined difference of 10.9% from February 2021 to February 2022. The average house price for all property types in February 2021 was £249,586, which was an average change of £27,169 to the following year’s average of £276,755. The biggest price difference was for detached houses, which experienced a 14.4% change from 2021 to 2022. Detached houses in February 2022 were recorded with an average of £438,523, which was a rise from £383,236 12 months previously.
Flats and maisonettes had the lowest price change in the 12-month period, with an 8.1% difference between the average prices. Property prices rose by an average of £17,050 from £210,953 in February 2021 to £228,003 in February 2022. There was a slightly higher price difference for terraced houses, with an average price increase of 9.0%. In February 2021, terraced houses cost £210,953, which increased to £222,930 in the following year. Terraced houses remained the cheapest type of property in February 2022, as they were in February 2021.
There was an 11.4% difference between the average price of semi-detached houses from February 2021 to February 2022. This type of property sold with an average price tag of £238,733 in February 2021, which increased by an average of £27,182 in the following 12-months.
All property types have seen an increase in prices and have followed the same trend as the overall price increase across the whole property market, including the decrease in price following the 2007-08 financial crisis. Detached houses have consistently been recorded as the most expensive type of property for the past 20 years, although other property types have seen some variation. For example, flats and maisonettes were the second most expensive property type in 2014 but were the cheapest type six years later in 2020.
What is the sale volume of properties in the UK?
England has seen significantly higher volumes of property sales than anywhere else in the UK, with around 33,759 sales in December 2021. However, there was no recorded UK transactions increase during this period. England saw a decrease of 51,946 from the previous December, which, when based on these provisional volumes, shows a decrease in property sales of around 52.5% during this period.
Sale volumes decreased by approximately 47.3% in Wales during this period, having dropped from sales of approximately 4,929 in December 2020 to 2,183 in December 2021. Scotland’s estimated decrease was significantly lower, with a drop of 11,148 in December 2020 to 8,814 in December 2021. Northern Ireland had the lowest decrease rate with an approximately 16.6% decrease in sales volume in the country.
These provisional estimates are on a seasonally-adjusted basis and therefore portray higher percentage changes. The figures, when reported on a non-seasonally adjusted basis, are lower. For example, England’s percentage change would be reported as 17.1%, with a change of 19.1% in Scotland and 16.6% in Northern Ireland. The non-seasonally adjusted figures would also show a 15.5% difference in Wales’ sales volume.
Will house prices continue rising?
In 2021, house prices in the UK saw their fastest annual rate of growth in 17 years. However, the rate of growth in the coming months will mainly depend on interest rates and inflation. The Stamp Duty holiday in 2020 and 2021 had a major impact on the volume of property sales in the UK.
Due to the lack of tax breaks, the rise in house prices is likely to slow down, especially when combined with the threat of increased interest rates and economic uncertainty caused by rising inflation. The high demand for houses when combined with the shortage of properties has also contributed to the increase in prices, which is a trend that looks set to continue in the coming months and years. Rural locations have seen increased interest, as many people look to leave cities following the COVID-19 pandemic and the increased hybrid or working-from-home model that many companies are introducing.
The Bank of England increased their interest rate to 0.75% in March 2022, which follows an increase in December 2021 and a further increase at the beginning of 2022. Previously, the Bank of England had suggested that its record low interest rate of 0.1% (which was in place until the end of 2021) had helped to contribute to the increase in property sales in the country. This change in interest rate is just one of the changes that could impact the housing market in the future.