House price growth cooled in July as the stamp duty holiday ended and Brits looked for more space amid the pandemic.
Annual house price growth slowed to 10.5% in July, from a 17-year high of 13.4% recorded the previous month, Nationwide’s House Price Index revealed.
In month-on-month terms, house prices fell by 0.5%, after taking account of seasonal effects, following a 0.7% rise in June.
This was "unsurprising”, the report said, given the significant gains recorded in recent months.
House prices increased by an average of 1.6% a month over the April to June period – more than six times the average monthly gain recorded in the five years before the pandemic
“Shifting housing preferences appear to have been the more important factor in driving the increase in housing market activity, with people reassessing their housing needs in the wake of the pandemic,” said Robert Gardner, Nationwide's chief economist
The threshold for stamp duty, a tax on property transactions in England and Northern Ireland, was at £500,000 until 30 June for residential purchases.
The "holiday" on the duty was meant to boost the property market by helping buyers whose finances were affected by the pandemic. It was initially meant to end in March but was extended to June by chancellor Rishi Sunak.
Amongst homeowners surveyed at the end of April who were either moving home or considering a move, three-quarters said this would have been the case even if the stamp duty holiday had not been extended beyond the original March 2021 deadline.
"But the tapering of stamp duty relief in England is also likely to have taken some of the heat out of the market,” said Gardner.
The relief provided a strong incentive to complete house purchases before the end of June, especially for higher priced properties.
The stamp duty changes drove the number of housing market transactions to a record high of almost 200,000 in June as buyers rushed to beat the deadline.
“Interestingly, the ‘savings’ from the stamp duty holiday have been dwarfed by the impact of recent house price gains," the report noted.
Looking forward, the report said “underlying demand is likely to remain solid in the near term" as consumer confidence has rebounded and borrowing costs remain low.
This, combined with a lack of supply on the market, suggests continued support for house prices.
But Nationwide said 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.
There is also scope for shifts in housing preferences as a result of the pandemic to continue to support activity for some time.
"The widespread talks of a market cliff edge once the stamp duty holiday ends have now turned to hushed whispers and while record rates of growth will inevitably lead to some monthly ups and downs, the long-term health of the UK property market is looking very good at present," said Ben Taylor, CEO of estate agent Keller Williams UK.
Watch: What do stamp duty cuts mean for buyers and house prices?