UK sales review Q2 2021

At national level the sellers’ market continues, with high demand and relatively low supply pushing up prices and turnover. Most of the benefit of the stamp duty holiday has gone, but other factors such as higher levels of savings, low interest rates, and lifestyle re-evaluation continue to drive activity.

This has translated into annual house price growth of over 10% and monthly transaction levels around 10% above pre-pandemic levels. Looking ahead there are some signs in the leading indicators that the pace of growth is starting to slow, but little yet to suggest a significant reversal of momentum.

Monthly data

The latest monthly figures, displayed in Figure 1, show continuing strong performance but suggest a slight moderation in activity and price growth compared to recent trends. There were 88,000 mortgage approvals in May (vs. a recent peak of 103k in November), and Nationwide reported monthly price growth of 0.7% in June (vs. 2.3% in April).

Figure 1 – UK house prices and mortgage approvals, monthly

1. UK Sales Figure 1 UK house prices and mortgage approvals monthly

Source Nationwide HPI, Bank of England. Note both seasonally adjusted

Transaction trends

Transactions recorded for the ONS house price index – based on completed sales only – picked up slightly but continued to fail to reflect the increases in activity shown by other measures. The index reported around 98,000 sales in March and 850,000 on an annual basis. As noted previously, it is likely that the lag in recording sales is larger than usual due to the impact of the pandemic and these figures will be revised up in future data releases.

The HMRC data recorded another record in June, with over 200,000 transactions provisionally recorded in single month for the first time since the data series began in 2005. Sales volumes reached almost 1.5m on an annual basis, 23% above the 2017 to 2019 average.

Sentiment around activity has continued to be mixed, reacting to changes in the pandemic outlook and corresponding policy responses. The RICS Housing Market Survey reported large swings in both agreed and expected sales. The ‘Sales Expectations’ measure, which looks forward three months, fell to -4 in June (compared to +35 in March). The backward looking ‘Agreed Sales’ measure also fell, to +8, compared to +46 three months earlier.

In the past these results, when ‘lagged’ by nine months, have been a good predictor of short-term trends in activity. However, the market has been responding more quickly through the pandemic, and with more volatility likely this year it could be many months before a clear new trend emerges. Figure 2 shows the two survey metrics plotted against the two measures of actual transaction levels. 

Figure 2 – Actual transaction levels vs. RICS sales metrics

1. UK Sales Figure 2 Actual transaction levels vs. RICS sales metrics

Source RICS Housing Market Survey (June 2021), HMRC, ONS UK HPI. Note RICS figures lagged 9 months. RICS and HMRC figures seasonally adjusted.

Rightmove described the market as “still frenetic but early signs of slowing” in their June index report, updating their take on buyer activity to “frenzied” in the July version. Average time to sell decreased, again, to 38 days in June (51 in March). They also reported record low levels of stock for sale among agents – 16 properties for sales per branch – compared to a previous low of 25 and long-term average of 31.

Slowing, but still high, demand was also noted by Zoopla in their June index report. Demand is 80% higher than the 2017-19 average but supply is still not responding – stock levels are 25% below where the 2020 average. Overall, this has resulted in sales agreed 22% up on 2020, with a forecast of 1.5m completed transactions for the full year, compared to 1m in 2020, and the highest level since 2007. 

House prices

Annual house price growth reached double digits at national level in Q2 on both the main indices. Nationwide reported an annual rise of 13.4% in June, with the May ONS figure at 10.0%. These are the highest figures for 17 and 14 years respectively.

The house price trends are shown in Figure 3, alongside RICS sentiment survey results. The net balance of opinion for ‘Achieved Prices’ reached 83 in June, its highest level since 1988. ‘Price Expectations’ fell back from recent highs to +29 in June (vs. +47 in April). This indicates that the agents surveyed are potentially less confident about the record growth continuing.  

Figure 3 – Actual value changes vs. RICS price indicators

1. UK Sales Figure 3 Actual value changes vs. RICS price indicators

Source RICS Housing Market Survey (June 2021), Nationwide HPI, ONS UK HPI. Note RICS data lagged 6 months.

Asking prices continued to rise in Q2, according to Rightmove’s index. They reached £336,000 in June, 4.6% higher than in March (note that annual growth data is not available due to the suspension of the index a year earlier). UK annual house price growth was 5.4%, according to Zoopla’s June index. Their other market metrics are summarised in the table below. Note that Zoopla continue to report lower growth than other indices due to weighting the average by the stock of homes rather than the homes that are actually transacting. With houses much more popular than flats at the moment and seeing higher price growth, the transaction-weighted indices will report larger rises.

Table 1 – Zoopla Market Metrics, year to date 2021 vs 2020

1. UK Sales Table 1 Zoopla Market Metrics year to date 2021 vs 2020

Source Zoopla June Index 

Outlook

Values and sales activity continued to rise strongly in Q2 but the outlook for the second half of 2021 looks increasingly uncertain. The stamp duty holiday has already tapered down and will end in September. Other Government economic support is also being reduced or withdrawn. The scheduled end of all virus-related restrictions in July was watered down in the face of growing Covid cases, and the risk of returning to some form of lockdown in autumn has increased. While the housing market has shrugged off the poor economic results so far, this is not guaranteed to continue.