Are Record-Breaking House Prices the Prelude to a Crash?

UK House prices have hit an all-time high according to Nationwide's long-running House Price Index, crowning the shock post-lockdown property boom.

The long-running measure of house prices showed that prices rose by 2% between July and August, the highest monthly increase for 16 years. The average price of a home now stands at £224,123.

House prices have now reversed the losses recorded in May and June and are at a new all-time high. This rebound reflects a number of factors. Pent up demand is coming through, where decisions are taken to move before lockdown are progressing.

said Nationwide's chief economist Robert Gardner

Experts at Nationwide building society found that nearly 15% of potential buyers considered moving as a direct result of lockdown, with gardens, roomier homes and friendlier neighbours topping these shoppers' wish lists.

Despite the easing of lockdown measures, estate agents and would-be movers have had to follow strict guidelines to limit the spread of Coronavirus, including social distancing measures and obligatory virtual viewings designed to cut down on the number of physical visits to the home.

But the restrictions have done little to weigh down a buoyant market.

Social distancing does not appear to be having as much of a chilling effect as we might have feared, at least at this point. These trends look set to continue in the near term, further boosted by the recently announced stamp duty holiday, which will serve to bring some activity forward.

said Mr Gardner.

However, some market-watchers warned that the days of record-breaking home sales are numbered.

Andrew Montlake, managing director of mortgage broker Coreco said the industry needed a 'reality check', pointing to the end of government support schemes in the coming months.

Demand is understandably strong after lockdown and the added bonus of the stamp duty holiday, but unemployment is rising by the day, and the economic outlook is highly uncertain as the furlough scheme ends.

said Andrew Montlake MD of mortgage broker Coreco

Consultants at EY's ITEM Club have predicted that prices will be at least 3% lower by December by the end of the year.

This seems to go against the grain of many brokers, who believe the boom won't start to slow down until the end of the stamp duty holiday in March 2021.

This leaves those in the market with mixed messages about whether now is the right time to buy.

Banks and lenders seem to be erring on the side of caution, with many having cut back on high-risk mortgages, despite the sudden gold-rush on homes.

A sudden fall in house prices could leave new owners with negative equity, meaning they owe more on their mortgage than their property is worth.

Not only is this bad for customers' bottom lines, but it could potentially leave thousands stranded in dire straits.

Some 20% of businesses told YouGov last month that they plan to make redundancies after the government furlough scheme winds down in October.

Mass redundancies paired with a house price crash could leave many homeowners trapped on unaffordable mortgages and unable to sell up due to negative equity.

These concerns have caused lenders to cut back on low-deposit mortgages, and hike rates on mortgages where borrowers can only offer modest deposits.

Nationwide itself backed out of mortgages over 85% LTV last month, citing uncertainty over customers' ability to make repayments.

Our priority at this time must be to help members keep their homes. As such, we need to ensure our members can afford their repayments while doing what we can to protect them from falling into negative equity.

said director of mortgages at Nationwide Henry Jordan.