House prices see largest rise on record during 2021

The average house price has risen to a record high of £254,822 during December, with the average price increasing by £23,822 over the year – its largest rise in a single year in cash terms.

The figures from the Nationwide House Price Index December report also show that the average house price, when taking into account seasonal adjustments, has increased by 1.0% month-on-month.

Robert Gardner, chief economist at Nationwide, said: “Annual house price growth remained in double digits in December at 10.4%, making 2021 the strongest calendar year performance since 2006. Prices rose by 1% month-on-month, after taking account of seasonal effects.”

He added: “Prices are now 16% higher than before the pandemic struck in early 2020.

“Demand has remained strong in recent months, despite the end of the Stamp Duty holiday at the end of September. Mortgage approvals for house purchase have continued to run above pre-pandemic levels, despite the surge in activity seen earlier in the year. Indeed, in the first 11 months of 2021 the total number of property transactions was almost 30% higher than over the same period of 2019.

“At the same time, the stock of homes on the market has remained extremely low throughout the year, which has contributed to the robust pace of price growth.”

Looking ahead into 2022 many experts believe that the housing market will start to slow, as Gardner explained: “It appears likely that the housing market will slow next year, since the Stamp Duty holiday encouraged many to bring forward their house purchase in order to avoid additional tax. The Omicron variant could reinforce the slowdown if it leads to a weaker labour market. Even if wider economic conditions remain resilient, higher interest rates are likely to exert a cooling influence. Indeed, house price growth has outpaced income growth by a significant margin over the past 18 months and, as a result, housing affordability is already less favourable than before the pandemic struck.

“However, the outlook remains extremely uncertain. The strength of the market surprised in 2021 and could do so again in the year ahead. The market still has significant momentum and shifts in housing preferences as a result of the pandemic could continue to support activity and price growth. Indeed, the Omicron variant could serve to reinforce the shift in preferences in the near term.”

This year saw mortgage rates hit record lows, with many lenders offering sub-1% remortgage and moving home deals. This month, however, the Bank of England increased base rate to 0.25%, which will likely have an impact on variable mortgage rates in the coming weeks.

While it is expected that lenders will start to increase their variable rates on mortgages, they may decide against increasing rates on fixed rate deals.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Factors beyond base rate, including the need to attract new business, may result in lenders keeping fixed mortgage rates competitive over the coming months. However, borrowers should keep in mind that with base rate expected to rise further in 2022, mortgage lenders could move to increase rates across all their deals, including fixed, so now may well be a good time to secure a new deal.”