Summary

• The average price of a UK home rose 3.4 per cent to reach £238,000 in June 2020.
• The house prices moved up to a record high as pent-up demand for homes was released after the government lifted lockdown
• There could be revisions to the House Price Index estimates than normal due to the impact of the pandemic-led crisis on both the number and supply of housing transactions.
• The average house prices in London increased by 4.2 per cent over the year to June 2020.

The Office for National Statistics (ONS) came up with its house price data for June 2020 on 16 September 2020. The data revealed that the average house prices in Britain rose 3.4 per cent in the year to June 2020. This increase was up from 1.1 per cent in the year to May 2020. The ONS observed that there has been a general slowdown in the growth of the UK house prices over the past three years. The slowdown was mainly seen in the south and east of England. However, there was a pickup in annual growth at the beginning of 2020 before the lockdown was imposed in March 2020. The ONS mentioned that there could be significant revisions to the House Price Index estimates than normal due to the impact of the pandemic on both the number and supply of housing transactions.

In June 2020, the average UK house price was at £238,000 or £8,000 higher from a consecutive month in 2019. Between May 2020 and June 2020, on a non-seasonally adjusted basis, the average house prices in Britain jumped by 2.7 per cent as compared to an increase of 0.4 per cent during the same period in 2019. Whereas on a seasonally adjusted basis, between May and June 2020, the average house prices in Britain moved up by 2.4 per cent. The ONS data showed that there was a decline of 0.1 per cent in the previous month.

The June data showed that house prices reached a new record high after the government lifted the lockdown restrictions and the housing market reopened in mid-May 2020 and pent-up demand for homes was released. The ONS stated that the rise in prices for June 2020 might have reflected some amount of pent-up demand after the lockdown restrictions were eased, especially at the higher end of the price scale. It is to be noted that the ONS and Land Registry restarted releasing their House Price Index. The index was suspended in May 2020 because of the difficulty in gathering accurate sales data during the lockdown months.

According to the latest seasonally adjusted numbers provided by Her Majesty's Revenue and Customs (HMRC) a non-ministerial department of the UK government, house transactions in England between May and June 2020 moved up by 28 per cent and reached 61,780. However, this was 37 per cent below the levels recorded in June 2019.

The growth in house price was observed as strong across Britain and five among the nine regions posted annual price increase of more than 4 per cent. On an annual basis, the price for houses in London increased by 4.2 per cent. This showed a strong growth after London recorded a period of relative weakness since the Brexit referendum. The highest average house price on an annual basis was seen for East Midlands, where prices grew by 4.5 per cent. In the North East, price rise witnessed the lowest growth and increased by only 1.7 per cent.

The buyers showed most of their interest in the terraced and semi-detached houses that posted the biggest price growth. While the prices for the terraced houses were up 4.2 per cent, the semi-detached houses recorded a 4.1 per cent price growth. The rise in prices for flats rose only 0.9 per cent.

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Key things to look at from the ONS data

Views from the experts

Many experts agreed that the ONS data confirmed a mini-boom in the UK housing market. The boom at that time was driven on account of resumption of transactions that went on hold due to the pandemic. The statistics for June 2020 mirrored majority of the offers made and accepted during March and April 2020. Industry insiders from the mortgage domain also viewed that the data showcased the extent of the impact that the rise in pent-up demand had on house prices post reopening of the housing market.

Several leading property platforms also felt that in order to have better clarity on where the market is heading, it is crucial to pay attention to the total number of transactions rather than just the house prices. Some economists felt that as the ONS data is about the transactions that completed in June 2020, it was likely that majority of the sales were agreed in the pre-lockdown period and there could be an increase in the amount of sales agreed post lockdown. At the same time, many experts agreed that the rise in prices would not last for long and there could be around 14 per cent fall in the prices in 2021, especially after the end of stamp duty holiday and likely rise in unemployment numbers.

Property market insiders considered that the shift in preference for a particular type of houses was driven mainly by the trends that emerged from the pandemic as people wanted to shift in larger houses to accommodate the needs of work from home. Buyers also looked for additional greener spaces in the houses.

Also read: Housing market trends: Boom continues with £37 billion summer sales

How has been the performance of small cap realty stocks?

Let us take a closer look at the performance of some of the small cap realty stocks amid the mini-boom witnessed in the UK’s property market.

Recent financial updates from Hunters Property plc

Hunters Property plc (LON: HUNT) is a franchised estate agency group based in the UK. According to its annual report and accounts 2019, Hunters Property said that a strong finish to 2019 helped it to offset the challenging market. The company’s network income was recorded as £42.3 million (2018: £39.4million). The network income for the year in lettings segment rose plus 12 per cent and in sales it was plus 5 per cent. Its turnover was £14.0 million (2018: £14.0m). The EBITDA was reported at £2.76 million (2018: £2.28m) and the adjusted profit before tax (PBT) was £2.06 million (2018: £2.02 million).

Hunters Property started 2020 at a positive note with sales valuations up 17 per cent in the two months to February 2020 as compared to the consecutive period in 2019. To mitigate the risks and uncertainty of the pandemic-led crisis, the company implemented cost savings measures like utilisation of the government’s Job Retention Scheme and securing an additional £3.5 million facility, while continuing with its core operations. The company is confident that these measures would keep it in a strong position to take advantage of the economic recovery. It is already noticing positive indications that the initial releases from the coronavirus-led lockdown are releasing pent up demand for property, along with its offerings and services.

Stock performance of Hunters Property plc

On 17 September 2020, at 11.59 AM, the company’s stock (LON: HUNT) was trading at £43.50. The 52 week low high range was recorded as 25.00 and 74.50. With a market capitalisation (Mcap) of £14.27 million, the stock provided a negative return on price, which was minus 34.09 per cent on a year to date (YTD) basis.

Recent financial updates from Wynnstay Properties plc

Wynnstay Properties plc (LON: WSP) is a company into property investment and development activities. As per the company’s annual financial statements for year ending 25 March 2020, Wynnstay posted £2,271,000 in its property income, which was 2.5 per cent more than 2019’s £2,216,000. The company’s policy of continuing to upgrade its portfolio resulted in disposal of two of its properties that it owned for many years, besides one acquisition during the year. The property rental income rose to £2.27 million (2019: £2.22 million). Wynnstay informed that this was the sixth successive year of rental income growth and fourth successive year in which it was more than £2 million.

Given the coronavirus-led crisis, the company felt that it was important retain an increased level of earnings in the business and make a lesser dividend payout this year. In December 2019, Wynnstay paid an interim dividend of 7.5p per share (2019 – 7.0p), and in mid-June 2020, it announced to pay a second interim dividend of 7.5p per share (2019 – final 12.0p), making a total dividend of 15.0p per share for the year. The second interim dividend was paid on 17 July 2020 to the shareholders. Due to making two interim dividend payouts for the year, the company did not declare any final dividend. Wynnstay mentioned that the board would keep its dividend policy under careful review and when the outlook would start looking more certain, it would return to its progressive dividend policy.

Stock performance of Wynnstay Properties plc

On 17 September 2020, at 12.30 PM, the company’s stock (LON: WSP) was trading at £575.00, down 4.96 per cent from its previous day’s close of £605.00. The 52 week low high range was recorded as 570.00 and 625.00. With a market capitalisation (Mcap) of £16.41 million, the stock provided a positive return on price, which was plus 4.31 per cent on a year to date (YTD) basis. The total volume of shares traded at the time of reporting was recorded at 2,418.

Conclusion

The data on rise in house prices by the ONS is similar to many other surveys, including Halifax and Nationwide conducted in recent past. Market experts highlighted the importance of number of transactions along with prices in the housing market. Both should be looked at to understand the complete picture. However, experts also pointed out that this boom in prices might not last for long with the furlough scheme ending that might put pressure on household finances.