House prices are soaring and homes are selling in record time but experts say they’ll crash

The property market has enjoyed a record-smashing summer. 

House prices jumped to a new high in August after the biggest monthly rise in 16 years, according to new Nationwide figures. 

And demand is off the scale, with buyers flooding back since the market re-opened in mid-May after being frozen during lockdown. But is now really a good time to buy a new home? 

And will this so-called ‘mini boom’ last? What’s the truth about the impact of Covid on property prices? Did they collapse — and have they suddenly rebounded? 

Here we explain everything you need to know about what’s happening in the housing market. 

Is the property market really booming? 

Ordinarily, there is a bit of a lull over the summer months as people go away on holiday — but not this year. House prices have just hit an all-time high, with the average home costing £224,123. 

This is 3.7per cent higher than prices last August. Last month, prices leapt 2per cent — the biggest monthly jump since 2004. 

August was the housing market’s busiest month for more than a decade, with the highest number of homes put up for sale since 2008, according to Britain’s largest property website, Rightmove. 

Despite social distancing still being in place, estate agents up and down the country say they have been overwhelmed with enquiries. 

Many insist they have never known anything like it. 

But why the sudden spike in interest?

Part of the reason it’s so busy is that the market is still playing catch-up after lockdown, with buyers and sellers looking to push through sales they were forced to put on hold in the Spring. 

But much of the demand is coming from new buyers who may have brought forward plans to buy in a bid to cash in on the stamp duty cut announced by chancellor Rishi Sunak in July. 

By raising the threshold from £125,000 to £500,000 until March 31 next year, he slashed the stamp duty bill to zero for 90 per cent of buyers.

Those purchasing homes worth more than £500,000 will still have to pay some tax, but stand to save as much as £15,000. 

Mortgages are also very cheap right now after the Bank of England cut the base rate to 0.1per cent in March. 

The average two-year fixed mortgage rate, for example, is just 2.2per cent, while the cheapest is only 1.14 per cent if borrowers have a sizeable deposit.

Activity has also been boosted by a behavioural shift as people reassess their housing needs. 

Since lockdown, many have realised they value outdoor space and want to move to bigger properties with gardens. 

Others who are working from home and no longer need to be within commuting distance of the office are looking to move out of cities to areas where they can get more for their money. 

About 15 per cent of people are considering moving as a result of lockdown life, according to a survey by Nationwide in May. 

Some wealthier owners may also be bringing forward their decision to sell in anticipation of a potential capital gains tax rise. 

Are prices soaring everywhere? 

Average UK house prices are rising because the recent surge in activity has seen demand outweigh supply. 

According to Nationwide’s new figures, the 2per cent rise in August has cancelled out falls seen in May and June. 

As always, the national picture does not always reflect what is going on everywhere. Prices are believed to be rising fastest in locations near the coast and in the country, mirroring the increased demand from buyers seeking out more green space and fresh air. 

According to estate agent Hamptons, the average home sold in the countryside in the last four months went for 97.9 per cent of its asking price — the highest share in three years. 

And 16 per cent of homes in the countryside went for more than the asking price, rising to 21per cent for homes located in smaller towns and suburbs. 

While four and five-bedroom homes with a garden are selling quickly, demand for one-bedroom flats has tumbled, according to research by Zoopla. 

The property website also noted more activity among wealthier demographics post-lockdown, who are less likely to be affected by the recession. 

The Zoopla House Price Index reveals that in the year to July, prices rose by an average of 2.5per cent. 

The biggest surge was in Nottingham, at 4.4 per cent. Figures from the Office for National Statistics yesterday show that, in the year to May, the lowest annual growth was in the East of England, where prices increased by 0.7per cent over the year. 

With an average price of £135,000, the North East is the only English region yet to fully recover from the 2008 house price crash. 

London prices remain almost twice the national average at £479,000. However, the capital could be facing a rougher ride than other regions as a growing group of new homeworkers look to abandon the Big Smoke. 

A survey by the Royal Institution of Chartered Surveyors revealed that prices had risen in all regions in July with the sole exception of London. 

Foreign investors have also been questioning if London is still attractive since Brexit, hitting the capital’s high-end property market. 

But a report by Savills claims that the capital’s traditional wealth corridors — such as Chiswick, Wandsworth and Wimbledon — have seen a surge in activity. 

As a result, the value of houses in these areas has proved more robust than flats in the second quarter of 2020, with houses falling marginally by 0.5per cent, compared with a 1.6per cent decrease for flats, the estate agent said. And this trend is likely to continue for the rest of this year, it added. 

Is now a good time to buy or sell? 

Experts are referring to the market as a ‘seller’s paradise’ with bidding wars, multiple offers over asking price and quick sales. The average time to sell a property has fallen from 39 days to just 27 since lockdown, says Zoopla. 

With demand outstripping supply, buyers are worried that if they don’t act fast they won’t find somewhere before the stamp duty holiday ends and miss out on savings. 

Property expert Henry Pryor says: ‘My advice would be if you want to sell, get on, make the most of the post-lockdown bounce and find a buyer — even if this means having to rent before you buy somewhere else or delaying the completion date so you have time to look. 

‘But I wouldn’t be in any rush to buy. I’d wait to see what happens to prices later this year. 

‘It may seem like the British property market is impervious to the biggest financial meltdown since World War II. 

‘But all those not involved in buying and selling properties are battening down the hatches and preparing for house price falls. 

‘The savings made from cheaper prices could be worth much more than what you save on stamp duty.’ 

Anyone looking to buy should also ensure their move is not based on the assumption that house prices will continue to rise and consider what will happen if they fall.

It is not as much of an issue for buyers moving somewhere they plan to live long-term. 

But those who are over-stretching or moving somewhere they will grow out of quickly should think twice to avoid ending up in negative equity — where borrowers owe more than the house is worth. 

Will I be able to get a mortgage? 

This is becoming much harder. Banks and building societies are more risk adverse than before the pandemic and pickier about who they will lend to. 

First-time buyers with small deposits face the biggest difficulties, with only a handful of mortgages on offer. 

Just yesterday HSBC, one of the few lenders still accepting applications from customers with small down-payments, pulled its deal for those with a 10per cent deposit. 

Lenders are also far stricter about what income they will take into account when deciding how much homebuyers can borrow. 

Many will no longer consider bonuses, overtime or furlough money, and are demanding extra paperwork such as proof of job security from employers. 

Rates are also starting to creep up as banks attempt to control demand, but they are still very low overall. 

Those with smaller deposits are, again, the worst affected. Last month, the Mail revealed buyers are being urged to brace for delays as lenders struggle to cope with a backlog of applications and pull deals at a moment’s notice. 

So prepare for everything to take longer than usual. 

Dominik Lipnicki, of Your Mortgage Decisions, says: ‘Everything is more complicated. Lenders are more picky and asking more questions, which causes delays, and more applications are turned down.

‘Some banks are asking for a letter from the borrower’s employer guaranteeing their job is safe, which can take weeks, while the self-employed are being asked for current bank statements as well as accounts. 

There are also fewer products to choose from and deals can disappear overnight if a lender is swamped.’ 

What does the future hold? 

The consensus is that this miniboom will not last long. The more optimistic say they are expecting the market to get even busier between now and the end of the year, as people rush to agree offers in time to complete before the stamp duty discount ends. 

But most industry experts agree that the question isn’t if prices will fall — but by how much. 

The country is in the midst of a pandemic and one of the worst recessions in history. 

And while the furlough scheme has propped up jobs since March, and mortgage holidays have helped struggling homeowners keep a roof over their heads, both schemes end soon. 

With unemployment predicted to hit 7.4 per cent this year, buying a new home will be the last thing on many people’s minds. 

Those who lose their jobs and can no longer afford to pay the bills will be forced to sell quickly or have their home repossessed. 

As demand plummets, leaving a surplus of supply, it will push down prices. 

Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: ‘House prices seem to be defying gravity but, later this year, we’re likely to find out that the market isn’t flying — it’s just falling with style.  

‘Over the next couple of months, as the furlough scheme and mortgage holidays come to an end, jobs will be on the line and borrowers will have incredibly tough decisions to make.

‘There are likely to be more forced sellers, a downturn in demand, and the full effect of the crisis will hit the market.’ 

Buyers are facing additional uncertainty as they wait to see how Brexit will play out at the end of the year — which will impact prices further. 

How much prices fall by is anyone’s guess, with most experts predicting between 3per cent and 10per cent. 

Lloyds bank said its worst case scenario was 20 per cent over three years, but 5per cent by the end of the year was more likely