The British are living in a low-confidence housing boom.

The British are living in a low-confidence housing boom.

Brits are experiencing a deceptive property boom

House prices in the UK rose sharply in August, marking an all-time high. This is certainly seen as an indicator of economic recovery. But economists are already seeing the next economic killer on the rise.

The house prices in the UK rose as sharply in August as they did 16 years ago. Compared to the previous month, they increased by two percent, according to the much-publicized index of the building credit society Nationwide. This is the biggest jump since February 2004.

In the country, prices are thus 3.7 percent higher than in the previous year. A home costs an average of 224,100 pounds (251,300 euros), the highest since the Nationwide index began recording in 1991.

As a result, house prices have recouped all the losses they recorded in May and June and are at a new all-time high, Nationwide’s chief economist said in London at the end of September..

The real estate market in the UK is receiving considerable attention as an indicator of economic development. As of March, transactions had stalled for weeks during the Corona lockdown. Britain has experienced a sharp economic downturn as a result of the pandemic. In March and April combined, the economy lost nearly a quarter, or 24.5 percent, compared to the same period last year.

Observers therefore point out that the current jump in the price of the real estate market is partly due to the pent-up demand from that period. However, property inspections were among the first easing of the restrictions allowed by the government.

Added to this is the tendency for buyers to look for more space now!

In addition, the market benefits from the special effect of a reduction in the so-called stamp duty that is due in a transaction. By the end of March 2021, home purchases up to a value of more than 500,000 pounds will be exempt from the levy.

Buyers save up to 15,000 pounds. For more expensive properties, the tax is reduced accordingly. Finally, low interest rates help with financing.

After months in their home office, British buyers are now increasingly looking for more space in the hope of a permanently reduced need to commute to the office, so now a  larger radius to their workplace is an issue and thus also the subsequent price increases in the rural areas around the largest urban centers.

15 per cent of respondents to a Nationwide survey in May, due to the experience of the lockdown, now consider moving from the city centers and small units to greater units into the rural suburban areas.

Many observers, however, are skeptical that the positive figures of recent weeks show a longer-term trend.

Most forecasts in the British journals assume that the labour market will weaken significantly in the coming quarters, due to the long-term consequences of the pandemic and the end of government programs. If that happens, it is likely to significantly dampen developments in the UK property market over the next few quarters.

The short-time work program launched by the government ends in October. The Economists expect a sharp rise in unemployment in sectors that have so far been heavily affected by this aid, as well as in many other European countries.

Will House prices in the UK slump by 16 per cent?

The Office for Budget Responsibility, which makes forecasts for the UK government, believes a 16 per cent fall in house prices is possible in a worst-case scenario.

If the current boom ends with a crash, it will drive 11 percent of homeowners into over-indebtedness, the calculations show. 130,000 households are considered a risk group because they took out a mortgage and paid less than ten percent of the purchase price directly with their own capital.

Source: Welt