London’s blue chip FTSE 100 (^FTSE) was driven up on Wednesday by UK housebuilders following the latest Office for National Statistics (ONS) data that shows average house prices increased by 5.4% over the year to October 2020, reaching a record high of £245,000 ($333,292.52). This is the highest annual growth rate the UK has seen since October 2016.
The house price boom contrasts with wider UK economic malaise. Britain’s recovery from the first wave of COVID-19 brought the economy to a standstill, rising by only 0.4% in October. GDP is expected to contract again due to November’s lockdown measures.
Despite this, the housing sector has flourished as more Brits reassess their housing situation in the face of successive restrictions that have forced them to stay home more.
“A heady mix of factors is powering the current acceleration in house prices. Lockdown living has led thousands of people to decide that they want more from their home – more space, somewhere comfortable to work and a better standard of life away from the big cities,” said Jonathan Hopper, chief executive officer at Garrington Property Finders.
Still, UK homebuilders have not been spared wider industry cuts early on as the coronavirus pandemic led to a temporary pause in property buying and shut down construction sites.
In April, Barratt, the UK’s largest housebuilder, announced it would furlough 5,500 of its staff or 85% of its workforce. Taylor Wimpey also cuts of 100 jobs in its last reporting period. Persimmon announced it would be culling bonuses and cutting pay by 20% in the wake of the pandemic.
While prices have been largely buoyed by the ONS data on Wednesday, the future outlook remains tied to Brexit talks, according to analysts.
“The housebuilders remain on a knife edge as things stand, with Q1 performance likely to be driven by the outcome of Brexit talks and subsequent economic fallout,” said Joshua Mahoney, senior market analyst at IG. “While the stamp duty holiday may have brought plenty of buyers to the table, the mental block that Brexit has provided to many means a deal could unlock a whole new source of demand in 2021.”
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