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UK house prices were up 1.4% and are currently up 8.2% in a year. The average UK house price is now 258,204, according to data from building society Halifax. but can house prices go any further? Or is the housing bubble about to pop?

A number of factors are driving prices, including the stamp duty holiday, low interest rates and the longer term effect of a simple lack of supply. Effectively it is almost £20,000 more expensive to buy a property than it was a year ago. Data from HM Customs & Revenue show property transactions in Q1 were 31% higher than they were a year ago (remember, there was no lock down in January/February last year).

Pandemic is causing UK house owners to re-think their location

The pandemic has also caused many Britons to reconsider their lifestyle circumstances, with many choosing to move out of expensive city centres after the experience of two lockdowns in urban areas.


The question is what will; happen when the effect of the stamp duty holiday fades, the government starts to wind down the furlough scheme, and UK unemployment starts to pick up?

“We expect the market to remain strong at least until the end of the year, with prices supported by a severe shortage of homes for sale and people wanting to make a move and get on with their lives as the pandemic finally recedes and life returns to normal,” said Mike Scott, chief analyst at estate agency Yopa.

Long term factors are at work across Europe to drive house prices

But there could be something else at work here. The pandemic is driving prices in other markets as well. Coupled with low rates across the planet, it means investors are piling into bricks and mortar like never before. Germany, for example, is seeing similar dynamics. The average house price in Essen was up 28% in 12 months to the end of March.

The University of Freiburg expects property prices in Germany to continue climbing until 2060. Yes, you read that right. This applies especially to metropolitan areas and sought-after locations, primarily in southern Germany. The reasons for this are international migration, the trend towards smaller households, a low supply of real estate and the increase in living space per person. The average German citizen occupies 45m² – by 2030 the average is expected to reach 49m².

This contrasts with big urban locations like London – fund manager  London Central Portfolio, which specialises in central London luxury property, once a very hot market, says transaction volume has fallen through the floor.

“The low transaction volumes demonstrate that real estate in this market is ‘tightly held’ and properties are not listed for sale during times of price suppression, which effectively creates a bottom line for property prices,” said Andrew Weir, CEO at LCP. “Sellers have been reluctant to place their property on the open market due to a lack of international investors resulting in volumes falling beyond the previous low levels witnessed in the immediate aftermath of the GFC and the years following the EU referendum.”

One of the key drivers for upscale London property has been that international interest, and would explain why London property is under-performing the national average at the moment. It used to be quite the opposite.

UK residential property is certainly looking frothy at the moment and our concern is the impact of a withdrawal of government support schemes for the labour market and a return to reality in the wake of the pandemic. But, with also think that the German academics are talking sense: there are dynamics at work across Europe, including in the UK, which are going to keep prices high, even if there is a slight correction in 2H 2021.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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