UK house prices bounce back unexpectedly in August

By David Milliken

LONDON (Reuters) -British house prices rebounded surprisingly strongly in August, chalking up their second-biggest monthly rise in 15 years after a fall the month before when a pandemic-era tax break began to be phased out.

Mortgage lender Nationwide Building Society said British house prices rose by 2.1% month on month in August after a 0.6% fall in July, well above economists' forecasts in a Reuters poll for a modest 0.2% increase.

Property purchases slumped in July when a year-long exemption from stamp duty for the first 500,000 pounds ($687,550) of a house purchase ended in England and Northern Ireland.

"The bounce back in August is surprising because it seemed more likely that the tapering of stamp duty relief in England at the end of June would take some of the heat out of the market," Nationwide chief economist Robert Gardner said.

But the pick-up in prices in August suggests the importance of other factors such as a shortage of houses and demand for more spacious accommodation suited to working from home, which have pushed up prices in Britain and in other countries.

"With the amount of second-hand stock on the market currently extremely limited, house prices could continue to surprise on the upside even after the stamp duty holiday takes a little heat out of demand," said Andrew Wishart, property economist at consultants Capital Economics.

House prices in August were 11.0% higher than a year ago, a bigger increase than the 10.5% rise Nationwide recorded in July and bucking economists' expectations in a Reuters poll for a slowdown to 8.6%.

Britain's official government house price index showed prices rose by 13.2% in the year to the end of June, the biggest annual rise since November 2004.

Demand for property priced 125,000-250,000 pounds, which still benefits from the tax break until the end of September, as well as lack of homes to buy, could be behind the rise, Nationwide said.

Underlying demand was likely to remain strong in the short term but could weaken later when the stamp duty exemption ends and the government withdraws furlough support for workers who have been unable to work due to the pandemic, it added.

($1 = 0.7272 pounds)

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