UK Property Market Outlook: 24 May 2021

New estimates show the extent to which spending in the housing market has bounced back from the pandemic
Written By:
Tom Bill, Knight Frank
3 minutes to read

More money was spent in the housing market in England and Wales in the year to March than any 12-month period since before the global financial crisis, an analysis of residential transactions shows.

The increase underlines the extent to which the UK property market has bounced back from the pandemic, culminating in a record month for transactions in March 2021 ahead of a stamp duty holiday deadline that was deferred until June.

Some £274.8 billion was spent over the 12-month period, which was 8.1% higher than the £254.1 billion spent in the year to March 2020, the month of the first UK national lockdown. The last time total spend over a 12-month period was higher was in November 2007.

The figures are calculated by multiplying the number of monthly transactions registered with HMRC by the average house price in the same month, figures that were last updated on 20 May. The method produces historical results that are within a few percent of the sum of individual sales recorded on the Land Registry, which has a reporting lag of several months.

“This shows what happens to certain parts of the economy when you press the pause button,” said Tom Bill, head of UK residential research at Knight Frank. “As we have seen in other sectors, a lull has been followed by a robust period of recovery, the shape of which can best be described as a jagged ‘V’.”

Demand has sprung back since the pandemic as people have reassessed how and where they live, a trend that has benefitted locations with more space and greenery. The Bank of England has also estimated that people have saved £203 billion over the course of the pandemic.

March 2021 was also the highest month for total spend in England and Wales since records began in 1995, the estimate shows. A total of £42.8 billion surpassed the second-highest figure of £34.3 billion recorded in March 2016, ahead of the introduction of a 3% stamp duty surcharge.

However, total annual spend did not reach the peaks seen in 2006 and 2007. Although house prices were lower during these two years, sales numbers were higher. Annual housing completions in England and Wales regularly exceeded 1.3 million during the period, which was marked by lower transaction costs.

The highest total spend over a 12-month period was £278.9 billion in August 2007, a year when 1.52 million transactions took place.

By comparison, a total of 1.06 million sales took place in England and Wales in the year to March 2021. The figure was 1.6% higher than the previous year, which is another increase few would have predicted at the start of the pandemic. The last time the annual number of transactions was higher was in May 2019.

The extent of the recovery has led to concerns over house price inflation, a question also facing the wider economy. The UK inflation rate more than doubled to 1.5% in April from March, which was primarily driven by higher energy prices. Many economists believe higher inflation will be short-lived and is a mathematical inevitability given the low figures in 2020 used as a starting point for calculations.

Average UK house prices increased 10.2% in the year to March, according to the ONS. Nationwide reported a monthly rise of 2.1% in April, which was the largest such increase since 2004.

However, the current period of house price inflation can also be viewed as a short term distortion, as we explore in more detail here.

In simple terms, the pandemic caused a supply shortage by curbing the usual post-Christmas spike in listings due to uncertainty over new Covid variants, the logistical constraints of home-schooling and a concern the original March stamp duty holiday deadline would be missed. The impact was greater in some parts of the country more than others, as we recently analysed.

We will provide further analysis this week showing the extent to which supply is starting to rise.