Halifax: Cheap borrowing and high demand push house prices to new record high

Property Reporter
5th November 2021
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UK house prices have once again hit a record high with the average home now costing in excess of £270k, according to the latest figures released this morning.

According to Halifax data, spurred on by the race for space and record-low interest rates, the average UK property price is now a record £270,027 following a monthly rise of 0.9%. Halifax say that annual house price inflation is now up to 8.1%, up from 7.4% the previous month.

Regions and nations house prices

Wales remains the strongest performing nation or region with annual house price inflation of 12.9% (average house price of £198,880), while Northern Ireland has recorded its strongest growth in four months (11.3%, average house price of £169,308).

House prices also continue to rise in Scotland, with the average property now up 8.6% year on year (average house price of £190,023).

In England, the North West has returned to being the strongest performing region (10.4%, average house price of £205,881), which is also a four-month high.

London remains by far the weakest performing area of the UK: annual inflation of just 0.8%, from an increase of 1.0% in September, is the lowest year-on-year rise in prices seen since February 2020. Though at an average of £514,907, property prices in the capital remain well above all other parts of the country.

Russell Galley, Managing Director, Halifax, said: “UK house prices climbed again in October, as the value of the average property grew by 0.9%, an increase of more than £2,500 during the month. With prices rising for a fourth straight month, the annual rate of inflation now sits at 8.1%, its highest level since June.

“One of the key drivers of activity in the housing market over the past 18 months has been the race for space, with buyers seeking larger properties, often further from urban centres. Combined with temporary measures such as the cut to Stamp Duty, this has helped push the average property price up to an all-time high of £270,027. Since April 2020, the first full month of lockdown, the value of the average property has soared by £31,516 (13.2%).

“First-time buyers, supported by parental deposits, improved mortgage access and low borrowing costs, have also helped to drive price growth in recent months. First-time buyer annual house price inflation (+9.2%) is now at a five-month high and has pushed ahead of the equivalent measure for home movers (+8.1%).

“More generally the performance of the economy continues to provide a benign backdrop to housing market activity. The labour market has outperformed expectations through to the end of furlough, with the number of vacancies high and rising relative to the numbers of unemployed.

“With the Bank of England expected to react to building inflation risks by raising rates as soon as next month, and further such rises predicted over the next 12 months, we do expect house buying demand to cool in the months ahead as borrowing costs increase. That said, borrowing costs will still be low by historical standards, and raising a deposit is likely to remain the primary obstacle for many. The impact on property prices may also be tempered by the continued limited supply of properties available on the market.”

Tom Bill, head of UK residential research at Knight Frank, said: “The housing market has largely shrugged off the end of the stamp duty holiday and price growth continues to apparently defy economic gravity. Stronger-than-normal demand has been boosted by frustrated buyers who were unable to move during the stamp duty holiday and others who have waited for calmer conditions after its conclusion. Lower-than-normal supply will only pick up meaningfully next spring given how seasonal the UK housing market is. This supply/demand imbalance will support prices in the meantime.

"Ultra-low borrowing costs also have also underpinned demand. Longer-term, there will need to be a readjustment as mortgage rates normalise, a process that has been delayed by the pandemic. Interest rates were 0.75% in early 2020 before Covid struck and we wouldn’t expect any meaningful impact on prices or demand while they remain below that level. However, what’s different between now and early 2020 is the higher cost of living, which may cause demand to start fraying around the edges depending on how elastic the definition of “transitory” becomes in relation to inflation.

"Over 3.5 million first-time buyer mortgages have been issued since the base rate dropped to 0.5% in March 2009. That is a large group of homeowners who don’t know what it’s like when interest payments rise meaningfully.”

Tomer Aboody, director of property lender MT Finance, says: "With record-low interest rates, high demand from buyers and low supply from sellers, it's no surprise that the average house price has hit such a high level.

"With buyer sentiment continuing to focus on increased space, buyers are moving quickly and offering record prices on homes, particularly detached houses with gardens.

"While the Bank of England will try to manage inflation by finally increasing interest rates in the next few months, rates will remain low compared to previous years. More supply is needed in order to manage the price increases and keep them in check. Removing or reducing down-sizers stamp duty, to allow more homes to come on the market, could be one solution the government should consider."

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: "These figures are no real surprise as they mirror Nationwide’s and confirm what we have been seeing on the ground - there is still plenty of life left in the market, even though buyers and sellers can no longer take advantage of government support schemes.

"However, they can still benefit from record-low mortgage rates and many, particularly those entering the market for the first time, must have breathed a sigh of relief yesterday when interest rates remained unchanged. This is only likely to prove to be a temporary reprieve as a rate rise seems inevitable.

"Looking forward, we expect not much change with more demand for houses than flats, masking larger differences in percentage changes."

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