House prices will fall by almost 14 per cent next year once the government’s temporary cut in stamp duty ends and the economic impact of coronavirus filters through to the property market, according to an analysis by an economic consultancy.
Figures from the Nationwide Building Society this month showed house prices rising at their fastest pace in 16 years but the Centre for Economics and Business Research (CEBR) said that the increase was an anomaly, driven by emergency policy measures designed to give the market a boost. The chancellor raised the threshold at which buyers pay stamp duty from £125,000 to £500,000 in July. It will remain in place until March 31.
Nearly nine in ten transactions on a principal property will attract no tax at all during the stamp duty holiday and the rate for second homes worth less than £500,000 will fall to 3 per cent from between 5 per cent and 8 per cent. Last month house prices rose by 2 per cent, taking the average to a record £224,123, Nationwide said.
The CEBR said that the generosity of the scheme, which the Treasury estimated would cost £3.8 billion, lifted transaction levels today but would depress them next year when the stimulus wore off and the economy was grappling with higher unemployment. The tax cut had raised prices by 1.2 per cent and increased transactions by 6 per cent, it estimated.
Pent-up demand during lockdown, when viewings were banned, added to the surge. Using pre-pandemic average transaction data, the CEBR estimates that 150,000 sales were delayed, equivalent to two months of activity.