Why UK house prices rose in March, despite coronavirus and lockdown

Housing market activity is now grinding to a halt as a result of the measures implemented to control the spread of the virus.

Despite the outbreak of coronavirus, a nationwide lockdown and the effective halt of the UK housing market, UK house prices have risen, according to the latest Nationwide house price index.

Prices for the UK as a whole in March rose by 0.8% compared to February, while March’s year-on-year growth came in at 3%, up from 2.3% in February. This marked the fastest increase since January 2018, when annual growth stood at 3.2%. The first quarter of the year also saw growth of 2.5%, compared to the same quarter in 2019.

With a painful recession looming due to the lockdown, and the UK housing market grinding to a halt, this steady increase in prices will likely surprise many. A sharp fall in house prices could reasonably be expected in such conditions.

The explanation, however, is simple. As Robert Gardner, Nationwide's chief economist, notes: “It is important to note that, while we use a full month’s worth of data to generate the index, the cut-off point is slightly before the end of the month.” As a result, many of the developments following the UK government’s lockdown announcement will not be reflected in these figures.

Gardner continues: “In the opening months of 2020, before the pandemic struck the UK, the housing market had been steadily gathering momentum. Activity levels and price growth were edging up thanks to continued robust labour market conditions, low borrowing costs and a more stable political backdrop following the general election.” Those strong conditions are reflected in the data.

The best-performing part of the UK over this period was Wales, with annual price growth in the first quarter coming in at 6.4%. England saw annual growth of 1.9%, Scotland 0.8% and Northern Ireland 0.7%.

Within England, the weakest growth was in the north, with prices falling marginally over the year. Elsewhere, London saw a modest recovery in prices following 10 consecutive quarters of negative growth, with annual growth of 1%. House prices in the capital are now 4% below their all-time high in the first quarter of 2017.

However, the London market’s relative robustness is evident in the fact that prices there are 50% above their 2007 levels, compared to the rest of the UK, which has seen an average increase of just 19% over the 13-year period.

House prices are now expected to take a downturn as the effects of coronavirus feed through. As Marc von Grundherr, director of Benham and Reeves, notes: “The latest house price figures present a brave face on an otherwise worrying landscape and we will no doubt see the current situation rear its ugly head further down the line in the form of a fall in values.” 

Alongside an economic contraction, Gardner points out that transactions will fall due to specific restrictions.He says: “Housing market activity is now grinding to a halt as a result of the measures implemented to control the spread of the virus, and where the government has recommended not entering into housing transactions during this period.”

However, he expects a strong rebound once the lockdown is lifted, on the back of the raft of policies adopted to support the economy.