House prices hit record high but Halifax predicts cooling UK demand

Average for October reaches £270k but lender expects interest rate rises to affect borrowing

Last modified on Fri 5 Nov 2021 08.22 EDT

UK house prices rose for a fourth month running in October, climbing above an average of £270,000 for the first time on the Halifax measure, but the mortgage lender predicted a cooling of the market in the months ahead if the Bank of England raises interest rates.

Halifax said the average cost of a home rose by 0.9% on the previous month, after rising by 1.7% in September, adding more than £2,500 to the value of a typical British home.

It pointed to several market drivers, including first-time buyers supported by help with deposits from their parents, improved access to mortgage deals and low borrowing costs.

“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,” said Russell Galley, managing director at Halifax. “Combined with temporary measures such as the cut to stamp duty, this has helped push the average property price to an all-time high.”

House price growth continue to remain strong despite the phasing out of the government’s stamp duty holiday at the end of September. The annual rate of house price inflation – 8.1% compared to the same month last year – was the strongest since June.

Wales continues to experience the strongest house price inflation in any UK nation or region, climbing 12.9% in October to an average of £198,880. The average price of a property in Scotland rose 8.6% year-on-year to £190,000.

In England, the north-west has returned to being the strongest-performing region, overtaking the south-west, with a rise of 10.4% – the highest rise for four months – and an average price of £205,881.

London continues to show the weakest growth: house prices rose just 0.8%, a fall from 1% in September, the lowest level seen since February 2020.

While the Bank of England decided on Thursday to keep interest rates at historic low levels, Halifax expects imminent rises and therefore an increase in borrowing costs for homebuyers.

“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,” said Galley. “That said, borrowing costs will still be low by historical standards, and raising a deposit is likely to remain the primary obstacle for many.

“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.”

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