UK house prices hit record high yet again

·4-min read
For sale sign
London's housing remains by far the weakest performing in the UK. Photo: Getty Images

UK house prices hit a record high in October, as the average property topped £270,000 ($363,615) for the first time, new data revealed. House buying demand is expected to cool in the coming months ahead as borrowing costs increase.

The value of the average property grew by 0.9% last month, an increase of more than £2,500 during the month, as per the latest Halifax house price index.

With prices rising for a fourth straight month, annual house price inflation was 8.1%, its highest level since June.

Since April 2020, the first full month of lockdown, the value of the average property has gone up by £31,516 (13.2%).

Chart: Halifax
Chart: Halifax

“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,” Russell Galley, managing director at Halifax.

He said this was combined with temporary measures such as the stamp duty holiday, which ended in September.

First-time buyers, supported by parental deposits, improved mortgage access and low borrowing costs, have also helped to drive price growth in recent months, he added.

First-time buyer annual house price inflation (up 9.2%) is now at a five-month high and has pushed ahead of the equivalent measure for home movers (up 8.1%).

“House price rises have become a family business. The Bank of Mum and Dad is powering growth in the price of first properties that are outstripping the rest of the market," said Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.

She explained that as house prices rise, parents feel more confident about dipping into the equity in their home in order to give their children cash to help them onto the property ladder. 

Read more: FTSE rises despite warning of UK inflation heading to 5%

This helps drive demand for first properties, which not only pushes up the price of these properties, but also gives second steppers more cash to make a move, and so the rise in prices spreads across the market.

It finally feeds into the price of family homes, so that more parents now feel more confident about dipping into the equity in their home, and so the circle continues. 

"Unfortunately, parents who aren’t in a position to help can’t offer the same kind of boost to their offspring, so those trapped outside the family circles are stuck watching prices rise further and further out of reach."

Meanwhile Galley said that “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”.

He also said that the Bank of England is expected to react to building inflation risks by raising rates as soon as next month, and further such rises are predicted over the next 12 months.

As borrowing costs increase, he expects house buying demand to cool in the months ahead.

But he also 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.

Read more: How the budget will impact property buying and selling

“One reason house prices remain inflated is the cheap cost of borrowing, with mortgages available with an interest rate less than 1%," said Martijn van der Heijden, CFO at mortgage broker, lender and home buying service, Habito.

"This could change soon though, as the Bank of England faces more pressure to raise the base rate and get a firmer grip on increasing inflation. Mortgages becoming more expensive is likely to lower the demand for buying homes and have a cooling impact on house prices in 2022.”

Region-wise, Wales remained the strongest performing nation or region with annual house price inflation of 12.9%.

London was 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.

But prices in the capital remain well ahead of the rest of the country – at an average of £514,907.

Watch: How much money do I need to buy a house?

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