What do the latest data reveal about UK house prices?

House prices continue to rise sharply, with the average transaction price having gone up by more than 10% over the year to November 2021. The stamp duty holiday introduced in July 2020 has had a striking impact but with varied effects across the nations and regions of the UK.

The latest data from the Office for National Statistics (ONS) reveal that house prices have on average increased by 10% over the year to November 2021. This is up from a 9.8% increase over the year to October 2021. The average house price in the UK was £271,000 as of November 2021 – £25,000 higher than a year previously and £4,000 higher than in October 2021.

The ONS data also reveal that most of this growth stems from the back end of 2020 and continuing into 2021 (Figure 1).

Figure 1: Annual house price rates of change for all dwellings, UK, January 2006 to November 2021

Source: HM Land Registry, Registers of Scotland, Land and Property Services Northern Ireland, Office for National Statistics – UK House Price Index

One possible contributing factor for the growth in prices beginning in the first half of 2020 is the stamp duty holiday introduced by the government in July of that year. This policy was introduced as an attempt to bolster the UK’s property market during the pandemic.

Stamp Duty Land Tax (or SDLT) is a tax on the purchase of property valued over a certain price threshold. This threshold is £300,000 for first-time buyers, and £125,000 otherwise (in England).

The temporary tax holiday meant that no SDLT was paid on houses valued over £500,000 in England and Northern Ireland. The threshold in Scotland and Wales was £250,000. These changes were intended to reduce buyers’ costs and increase their confidence in buying or renovating. This idea was that this would help maintain business for estate agents, architects and surveyors, in turn driving wider economic growth.

But a shift in price has little effect on the supply of housing in the UK – something economists call ‘inelastic supply’. This is particularly clear in in the South East and Greater London. This means the tax break policy may have also allowed sellers to demand higher prices from buyers, acting as a catalyst for the acceleration in house prices. Rather than making homes more affordable and stimulating growth, the data suggest that sellers extracted the value saved by the tax holiday and simply increased their asking prices.

Increasing prices as a response to policy aimed at helping homebuyers has happened before. Evidence shows that the reaction from sellers to schemes such as Help to Buy in the UK – a scheme aimed to increase access to home ownership for first time buyers – was also to raise prices (Carozzi et al., 2020).

The tax break was supposed to end in March 2021 but was extended to the end of September. This may explain the volatility seen at the end of the series in Figure 1. This is because house prices may have been inflated further at the stage when sellers thought the tax break was drawing to an end (since buyers would rush to purchase before the extended deadline).

How have house prices evolved in different parts of the UK?

Figure 2 depicts how average house prices have changed across the devolved nations of the UK. The data clearly shows a larger average house prices in England when compared with Scotland, Wales and Northern Ireland. Notably, however, the stongest growth rate seen in the recent data is Scotland’s.

Figure 2: Average house price by country, UK, January 2005 to November 2021

Source: HM Land Registry, Registers of Scotland, Land and Property Services Northern Ireland, Office for National Statistics – UK House Price Index

As of November 2021, England has by far the highest average house price (at £288,000). Northern Ireland comes in as the cheapest country to purchase property within the UK, with an average house price of £159,000.

To unpack the data further, it is worth exploring how prices vary within England. Figure 3 shows the average house prices by sub-national region.

Figure 3: Average house price, by English region, January 2005 to November 2021

Source: HM Land Registry and Office for National Statistics – UK House

The region of England with the lowest house prices is the North East. With average asking prices at just £149,000 in November 2021, prices have only just started to creep above pre-financial crisis levels.

As expected, London is the most expensive place to purchase property in England (and the rest of the UK), with an average price of £520,000. But despite this high valuation, London is also the region with the lowest annual price growth, with prices increasing by ‘only’ 5.1% over the year to November 2021.

The growth rate in London house prices is also down compared with the rate in October 2021. This is also the case for Wales. This suggests that the tax breaks introduced during the pandemic, as well as wider changes in consumer demand (such as an increased preference for more outdoor space), did not have uniform effects on all nations and regions of the UK.