To say the housing market has surprised us all in the last year would be an understatement. We’ve seen prices increase at their fastest rate since 2014. We’ve witnessed a record average house price of £336,073 for England and Wales. And all of this has happened while the UK’s GDP (usually such a reliable barometer for how housing is set to the fare) has plummeted. 

However, nothing grows forever. Economists of all stripes agree that the housing market is due to slow down at some point between now and late 2022. Even the Bank of England, hardly know for its alarmist nature, recently described the market as “on fire” and “feeding inflationary forces.”

The question is, when? 

What Do the Figures Say? 

According to the Reallymoving House Price Forecast for May, the market’s stratospheric growth will continue for much of the summer. However, the forecast also predicts that the monthly rate of growth will dwindle to just 0.4% in August. 

Likewise, RightMove lists June’s growth of  0.8% as significantly smaller than May’s (1.8%) or April’s (2.6%). The online real estate portal has described this as an early sign that the past few months’ rapid growth may finally be slowing. 

Why September?

There are a couple of reasons why September is the most likely month for the slowdown to take effect. 

The first is the stamp duty holiday. Up until 30th June, stamp duty was only paid when the purchase price exceded £500,000. But from the 1st July, this threshold has reduced to £250,000 and will revert back to the standard cap of £125,000 on 1st October. So, all that considered it’s reasonable to describe September as the end of the stamp duty holiday (provided, of course, it isn’t extended again). 

This is important because, for many commentators, stamp duty has been a key driver of demand since the turn of the year. By September, most of this demand will have dried up and the holiday will be in its final few weeks, meaning anyone still thinking of buying by then will likely hold off.

It’s hard to predict exactly how the market will look once this booster is removed, but we can say with some certainty that it’ll be considerably less hectic. 

The second reason is something that doesn’t get enough coverage, but could prove very important. Ask any economist and they’ll tell you that household disposable income is a key factor in housing prices and demand. It’s a pretty simple equation: less disposable income, less people buying houses.

Throughout the pandemic, household income has been held relatively stable due to the government’s furlough scheme. In fact, so much so, that even when GDP took a huge hit household income stayed relatively stable. This could all change once the furlough scheme ends in September. 

According to research from Bristol University, a 1% reduction in disposable income has historically led to about a 2% reduction in house prices. So, even in the event the economic fallout from the end of the furlough scheme is small, we’re still likely to see some reduction in house prices and demand. 

Does This Mean a Crash? 

With everything we’ve covered so far, you could be forgiven for feeling a little nervous. Does this mean we’re heading for a 2008-style crash?

Not necessarily.There is a very pessimistic reading of our scenario which posits that the end of the stamp duty holiday will lead to a credit-driven housing bubble bursting spectacularly. In this scenario, the crash rips through the UK financial system and plunges us into another recession. 

If you’re feeling masochistic, this piece from the Guardian is an excellent introduction to how it could happen. 

However, as we mentioned, that’s a very pessimistic scenario. The optimistic view is house prices and demand drop slightly or flatten but this doesn’t lead to anything more serious. The market remains reasonably buoyant due to our changing working habits and the demand this creates for property outside of major urban centres. 

Which scenario plays out over the next few months is impossible to predict and making grand proclamations is probably unwise. However, it should be said there is still plenty of room for optimism. The housing market has proved resilient throughout one of the largest shocks in recent human history. Who’d bet against it doing so again?