U.K. house prices post biggest monthly increase since 2004

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U.K. house prices increased by the most in 16 years in August after a tax cut stoked post-lockdown demand, but the revival could prove-short-lived as the government begins to withdraw its pandemic support.

Values jumped 2% from a month earlier to an average of 224,123 pounds ($300,000), Nationwide Building Society said Wednesday. On an annual basis, prices rose 3.7%.

"House prices have now reversed the losses recorded in May and June and are at a new all-time high," said Robert Gardner, Nationwide's chief economist. The stamp-duty holiday "will serve to bring some activity forward."

The housing market came to a standstill during the coronavirus lockdown. To get it going again, Chancellor of the Exchequer Rishi Sunak in July temporarily waived stamp duty on the first 500,000 pounds of any property purchase. The tax cut is due to last until March 31.

The question now is how long the boost can be sustained. Government support measures will start to run out next month, and unemployment is expected to rise. Nationwide said activity could weaken in the next few quarters, and many economists agree.

The pound was little changed after the report, trading at $1.33 as of 8:30 a.m. in London. It comes hours before Bank of England Gov. Andrew Bailey is due to address lawmakers on the economic impact of the coronavirus.

The housing market in England reopoened in May, with Wales, Scotland and Northern Ireland following suit a month later. In a sign that momentum is set to be maintained in the short term, BOE figures Tuesday showed that mortgage approvals surged for a second month in July.

Nationwide's Gardner said social distancing is not having the "chilling effect" that had been feared.

"Pent-up demand is coming through, where decisions taken to move before lockdown are progressing," he said. "Behavioral shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown."

Bloomberg News
Home prices Housing market Bank of England U.K.