Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

EARLIER this week, housebuilder Taylor Wimpey rejected the notion that the UK housing market is in a bubble. Good to hear, but it does get you thinking: what exactly is going on with house prices?

The market has been hot for some time now. It may be too hot. Andy Haldane, outgoing chief economist at the Bank of England, recently described it as “on fire”. Prices have been steadily rising for months, with demand now twice as high as typically seen this time of year between 2017 and 2019, according to property website Zoopla.

Two factors explain the upward trend. The first comes down to the changes the pandemic has wrought on people’s working habits and priorities. With many city-dwellers now working more flexibly, a “race for space” has seen house prices rise highest in rural areas like Wales and the North West of England, and lowest in London. That’s as apparent in recent months as it has been since the start of the pandemic - a 13.8% annual increase in house prices in Wales over June was the strongest growth recorded since March 2005, according to Halifax.

The other factor - the temporary cut to stamp duty - is now in its second phase, with the nil rate band once available for properties up to £500,000 now down to £250,000. It will last until 30 September 2021, at which point stamp duty will finally return from its break.

The effect of the stamp duty holiday has been profound, with Halifax noting June was the busiest month for mortgage completions since 2008 as buyers scrambled to get deals across the line in time to benefit.

Its cessation coincides with the wrapping up of the furlough scheme, which also bows out gradually before finishing at the end of September.

Have the two helped blow up a housing bubble? Perhaps. A bubble must eventually burst, implying a sudden reversal against a period of sharply rising prices. Removing furlough and the stamp duty holiday - two of the market’s safety nets - could set alarm bells ringing.

In reality, fears of a bubble look overblown. What’s more likely is a cooling. Evidence of the latter was provided by Halifax’s latest house price index. A 7.6% annual rise in prices over June sounds impressive, but is actually the lowest annual growth since March.

While government schemes begin to recede, supportive economic conditions remain intact. Prices will remain high in the short term as demand continues to exceed supply. An improving labour market and rising consumer confidence will also help fend against any sudden correction.

The continued race for space will help too - Zoopla said a “reassessment among many homeowners of where they want to live” will continue to fuel demand into 2022.

At some point, we may expect things to cool. A burst looks unlikely.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

Share this article

Latest articles

Watch: Market News Update - 16 May 2022

In this week’s market update: another down week for shares; bond markets catc…


Tom Stevenson

Tom Stevenson

Fidelity International

Market news today - Contrarians sense a turning point

What’s driving your investments this week?


Tom Stevenson

Tom Stevenson

Fidelity International

How to turn a profit in the post-Covid market

A bigger state and rising inflation means it really may be different this time


Tom Stevenson

Tom Stevenson

Fidelity International