According to Nationwide’s latest house price index, which goes back to 1952, the average price of a house in the UK now stands at £250,311, which is an increase of £30,728 since the pandemic started in March last year.
It is the first time the measure has recorded average prices in excess of £250,000.
It continued that annual house price growth in October remained elevated at 9.9 per cent. This compares to a 10 per cent month-on-month change in September and is the first time since April that month-on-month change has been in single digits.
Nationwide’s chief economist Robert Gardner said demand for homes had remained strong despite the expiry of the stamp duty holiday in September.
He pointed to the fact that mortgage applications in September came to 72,645, which is 10 per cent above the monthly average in 2019. He said strong application activity combined with lack of homes explained the robust price growth.
Gardner said: “The outlook remains extremely uncertain. If the labour market remains resilient, conditions may stay fairly buoyant in the coming months – especially as the market continues to have momentum and there is scope for ongoing shifts in housing preferences as a result of the pandemic to continue to support activity.
“However, a number of factors suggest the pace of activity may slow. It is still unclear how the wider economy will respond to the withdrawal of government support measures. Consumer confidence has weakened in recent months, partly as a result of a sharp increase in the cost of living.”
Impact of interest rates
Gardner added that even if wider economic conditions did improve then rising interest rates may “exert a cooling influence on the market” though the impact on borrowers would be “modest” as most new mortgages had been extended on fixed interest rates.
He said investors expected the Bank of England to increase interest rates from their current low of 0.1 per cent before the end of the year to 0.25 per cent or 0.5 per cent, and added it could possibly reach one per cent within a year.
Gardner said the number of outstanding mortgages on variable rates which would see an increase in payments if the base rate rises, had reached its lowest level on record at close to 20 per cent. This is down from around 70 per cent in 2001 and circa 60 per cent in 2011.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said all eyes were on the Monetary Policy Committee, who will be making a decision on interest rates tomorrow.
He said: “The markets have already factored in at least one modest base rate rise, and a couple more by the end of 2022, with lenders raising their cheapest mortgage rates accordingly. Even if there isn’t a base rate rise this month, it is only a matter of time but with most borrowers on fixed rates, the immediate impact should be minimal.”
Housing market outlook
Whilst the interest rate will have an impact on the market most were optimistic about the outlook for the housing market.
Tomer Aboody, director of property lender MT Finance, said: “With the strongest housing market ever recorded and average prices hitting over £250,000, a slowdown doesn’t seem to be on the cards just yet. With interest rates still at their lowest level on record and employment robust, demand and affordability remain strong.
“As we head towards a less stable position with an imminent interest rate rise, just as government support comes to an end, surely there will be a shift. This rate of growth simply can’t go on forever.”
However, he added that “demand for good houses with space will always be there” as buyer sentiment had changed since the pandemic. He said activity would also be less frantic as the market started to stabilise.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said rising prices showed growing transactions, but this could mask differences between houses and flats as well continued supply shortage.
He said: “The bidding wars and stamp duty holiday may be over with rising mortgage rates and inflation more of an issue, but on the ground, there is still a determination to move.
“Buyers and sellers prefer working in this new normal with less pressure even though some urgency may have gone out of the market. Listings are improving but not fast enough to keep up with demand.”
Managing director of Sirius Property Finance, Nicholas Christofi, said mortgage rates may “creep up over the remainder of the year”.
He said: “This may be a scary thought for a generation of homeowners and buyers who have only even experienced record low rates and mortgage affordability for over a decade now and we could see the current rate of house price growth slow as many take a more conservative approach to borrowing.
“But this is no cause for panic, mortgage rates ebb and flow and while there may be an increase, this is not a return to the 1990s. Mortgage rates will remain near to historic lows and regulations have dictated for some time that new borrowers are ‘stretch tested’ before being granted a loan to avoid any financial turmoil.”