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UK house prices increase sharply in August

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UK house prices recorded their second largest monthly gain in 15 years in August as homebuyers sought to take advantage of a closing window on the stamp duty “holiday”.

House prices rose 2.1 per cent compared with the previous month, according to data from Nationwide building society published on Wednesday.

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But tax incentives were not the only factor boosting housing demand. Supported by low interest rates, high household savings and the reassessment of people’s needs due to increased homeworking, the UK housing market has been one of the strongest among advanced economies since the start of the pandemic.

“People want, and are increasingly being allowed to work from home more and that is redefining the property market and powering it onwards,” said George Franks, co-founder of London-based estate agents, Radstock Property commenting on the Nationwide house price index.

The increase surpassed the 0.2 per cent expansion forecast by economists polled by Reuters, and marked the largest monthly rise in property prices since 2006, bar that in April this year.

Annual house price growth accelerated to 11 per cent in August, bringing the average price of a home in the UK to £248,857, around 13 per cent higher than before the start of the coronavirus pandemic.

Robert Gardner, chief economist at Nationwide, said the strength of the property market might reflect strong demand for houses costing between £125,000 and £250,000 ahead of a tax cut on stamp duty expiring on September 30.

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On July 1, the threshold up to which buyers in England and Northern Ireland could avoid paying stamp duty decreased from £500,000 to £250,000.

From October, thresholds will revert to their levels before July 2020, when the tax holiday was introduced to stimulate the housing market following the first national lockdown.

Data released by the Bank of England on Tuesday showed that the “effective” rate — the actual interest rate paid — on newly drawn mortgages reached a historic low of 1.83 per cent in July, resulting in lower costs for home buyers.

“We expect the property market to be extremely active over the coming months as more borrowers look to take advantage of the super cheap rates on offer and the greater availability of low deposit mortgages,” said Aaron Strutt, product and communications director at Trinity Financial.

Gardner added that the lack of housing stock was a probable driver of the August price increase, “with estate agents reporting low numbers of properties on their books”.

Some economists expected rising inflation and the withdrawal of the UK furlough scheme to cool house prices in autumn. But the labour market recovery and rising wages point to a continuing rebound in the housing market.

Nicky Stevenson, managing director at national estate agent group Fine & Country, said: “The market may well be running red-hot for some time to come”, fuelled by the low cost of borrowing, shrinking housing supply and government incentive schemes for first-time buyers.

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“The boom goes on,” she added.

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