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Your September market update

Inflation, interest rates, and the big changes to stamp duty — we've got it all in your September Market Update.

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It’s time for your monthly dose of property news: streamlined and simplified Strike-style, so you don't have to pull your hair out wondering what it all means — that's what we're here for. We’re going to talk about the latest changes to stamp duty, but first we need to talk about what’s going on in the wider market (and, yes, it’s a lot — but we promise, we'll get through it together). Let’s get started.

First, we need to talk about inflation

But only for a minute, and then we can go back to talking about nicer things. If you don’t fully understand inflation, you’re not alone — so we did lots of research and are ready to talk you through it. So here’s the simplified version, without all that scary jargon (you’re welcome). 

What is inflation? It basically means a general rise in the cost of services and goods in a country, which means your money has less power to buy things. It’s why you may have noticed that packet of pasta costing you more, or why you feel like your paycheck goes as far. 

Why is it increasing so much? Lots of reasons, but currently it’s mainly because of these things, which all sound a lot more complicated than they actually are, so bear with us (or just read really quickly).  

  1. An increase in production costs, like wages and raw materials

  2. The war in Ukraine, which put financial sanctions – or fines, to the rest of us – on the import of oil from Russia, which normally accounts for about 10% of the oil supply globally

  3. More demand generally, like the demand for oil going back to pre-pandemic levels, because we’re finally flying again

  4.  Fewer goods available because of things like Brexit trade barriers 

  5. The long-term effects of the pandemic

So, what does this have to do with interest rates? Great question. Interest rates have been going up to discourage lending, which is meant to keep the inflation rate down — or try to. They went up again last week, and may continue to rise. This means higher mortgage rates, especially for those on variable rate agreements.

How does inflation affect homeowners, or prospective sellers?

While the value of your home has been rocketing over the last two years, lots of data (from The Bank of England, for example) is suggesting that there will be a dampening of the housing market, and therefore a slowing of the increase of the value of your property — especially as the cost of living crisis picks up and mortgage rates continue to rise. But other factors, like the stamp duty changes and a lack of supply, could keep the market afloat (more on that later).  

There is good news though, with the Money Mentor suggesting that a property crash this year is “very unlikely”. This means that owning your house still continues to be a good hedge against inflation on the whole. 

This takes us to the second topic of our market update…

When we look at house prices in July 2021 compared to 2022 there seems to be a vast jump because of this temporary drop. But that’s not really an accurate picture of what’s been happening from year to year, so the headlines can be misleading. "

The Land Registry’s UK Housing Index has reported that house prices have grown by 15.5% year-on-year in July.

It sounds big. But why such a jump? And are these statistics to be trusted?

A quick answer to that question: not really. Despite the figures showing the largest increase in property prices in 19 years, a deeper analysis of the facts shows that this isn’t really true. Well, it is true, but it’s kind of a statistical anomaly. 

So, what’s really been going on with house prices in the last year?

If the Land Registry’s stats were to be taken at face value, there would have been a doubling of the rate of house price growth in a year (from 7.8% in June, to 15.5% in July). However, the statistics are skewed and are therefore quite misleading. So what’s skewing them?

The artificial pushing of the stats is mainly due to the fact that there was a sharp decline in the housing market in July 2021. 

Why? Because there was such a rush to complete on the sales of houses before the end of the Stamp Duty Holiday at the end of June 2021. All the sales that would have been spread out throughout several months were all pushed into June, leading to a slump in July. Therefore, when we look at house prices in July 2021 compared to July 2022 there seems to be a vast jump because of this temporary drop. But that’s not really an accurate picture of what’s been happening from year to year, so the headlines can be misleading. You can see it more clearly in this super-scientific illustration:

And now: Stamp Duty

We’re bringing you a bonus section of the update this month, because of last week’s stamp duty announcement. It was big news and lots of figures were shouted about, but it’s actually more simple than you might think. 

What’s changed with stamp duty? Essentially, there were two big changes. You can read more about them on the government website, but it boils down to this:  

1. The “nil-rate tax threshold” (which is just a fancy way of saying the bit you pay no tax on), has increased from £125,000 to £250,000. So you’ll pay no tax on the first £250,000, and if your property is under that price (and it’s the only property you’ll own), you won’t pay any tax. 

2. If you're a first-time buyer, you’ll also notice a change. The threshold for First Time Buyers’ Relief is increased from £300,000 to £425,000, meaning first-time buyers won’t pay any tax on the first £425,000 — unless the property is over £625,000, in which case you’ll pay full tax. Remember, both of you have to be first-time buyers to be eligible for first-time buyer relief. 

Why have these changes come into play? According to the government, it’s “part of the government's commitment to support homeownership and promote mobility in the housing market, in turn supporting economic growth”. In other words, more homeowners and more growth. But some people worry that it may drive already eye-watering home prices up further. The truth is, only time will tell. 

It's going to be a bit of a rollercoaster over the next few months, but we’ll be here to explain anything that’s got you scratching your head. Until next month…