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UK house prices unexpectedly pick up in August

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© Reuters. FILE PHOTO: A person jogs past a row of residential housing in south London, Britain, August 6, 2021. REUTERS/Henry Nicholls

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By David Milliken

LONDON (Reuters) -British house prices rose by 2.1% month on month in August after a subdued 0.6% increase in July, despite the phasing-out of a tax break for purchases in England and Northern Ireland, figures from mortgage lender Nationwide showed on Wednesday.

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%.

British house prices have boomed over the past year – like those in a number of advanced economies – as the COVID-19 pandemic spurred greater demand for more spacious housing.

But a number of indicators had shown a slowdown in activity in July after the partial withdrawal of a reduction in property purchase tax, known as stamp duty. The tax break will be withdrawn in full at the end of September.

“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.

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, he added.

August’s monthly increase was the second-largest in more than 15 years, after a 2.3% rise recorded in April, and July’s 0.6% growth represented a big upward revision from an initial estimate of a 0.5% fall in seasonally-adjusted prices.

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, Nationwide said.