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.

There are two reasons why the housing market has proved resilient over the past 12 months.

The first is due to changes the pandemic has wrought on people’s working habits, along with their priorities. With more people working flexibly, city-dwellers have seized the opportunity to flee the hustle and bustle and escape to the country.

That’s been clear in regional house price shifts over the last quarter. In the latest Nationwide House Price Index, London exhibited the lowest level of house price growth across the UK since the start of 2021. Prices in the capital rose 4.8% year-on-year, well behind the North West, which was the strongest performing region. An 8.2% rise in prices is the region’s strongest growth since 2005. The pattern of migration from London docks to the Lake District is clear.

Not only have buyers seen their opportunity, they’ve also found the means. Over 2020, the household savings ratio - the average percentage of disposable income that’s saved - reached a record high of 16.3%, up from 6.8% in 2019, according to the Office of National Statistics (ONS).

Households that have been lucky enough to maintain an income have been largely unable to spend it on leisure and holidays. Some have turned to a house in the country instead.

The second reason is the temporary cut to stamp duty for properties up to £500,000 announced by the chancellor, Rishi Sunak, during his summer financial statement in July. That amounts to a maximum saving of £15,000.

We had been expecting this stamp duty “holiday” to end by April. It wasn’t until his March Budget that the chancellor extended the holiday until the end of June.

The stamp duty holiday has done much to buoy the market since July - as such, fears that it would expire by April seem to explain the fall in house prices seen this month.

House prices fell by 0.2% following a 0.7% rise in February. Though prices remain 5.7% higher than this time last year, that’s lower than the 6.9% annual rise in February.

Nationwide explained: “Given that the wider economy and the labour market has performed better than expected in recent months, the slowdown in March probably reflects a softening of demand ahead of the original end of the stamp duty holiday before the Chancellor announced the extension in the Budget”.

Now that the holiday looks here to stay over the traditional spring selling season, a resurgence in house prices is likely.

Recent economic measures for the medium term suggest the same - activity has risen in anticipation of easing lockdown restrictions, and today’s revised GDP figures show that the economy grew toward the end of last year at a faster rate than previously thought. The chancellor’s new 95% mortgages, also unveiled in the Budget, should keep a spring in buyers’ steps.

Given too that international travel over the summer could be impossible, our green open spaces may look even more appealing to households which will soon have had 18 months to save.

The longer-term outlook, however, is far more uncertain. Today’s Nationwide figures lay bare just how vital the stamp duty holiday has been to the housing market. Just as the furlough scheme can’t prop up the labour market forever, so too the stamp duty holiday will eventually come to an end. Assuming it does by July, a subsequent drop off in sales should be expected.

The fate of the two schemes could go hand in hand. The furlough is due to end in September, after the stamp duty holiday. And while unemployment did drop over the three months to January - from 5.1% to 5% - unemployment is still expected to peak at 6.5% by the end of this year, once the furlough wraps up for good. The loss of both could have a significant bearing on the housing market.

Much of the broader outlook for house prices depends on the nature of our economic recovery. The picture will start to look rosier over the coming months, as lockdowns ease and consumers return to high streets, but the long-term diagnosis for the economy, and the housing market, remains to be seen.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. 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.

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