House prices continue to rise

Data published by Nationwide Building Society shows that annual house price growth hit 10% in November. This latest rise puts the average price of a UK house at £252,687 in November 2021, which when compared to March 2020, immediately before the pandemic hit, means that house prices are almost 15% higher overall.

Whilst property values have increased, the data also showed that the volume of transactions has slowed quite considerably. The number of transactions in October 2021 was down 30% year-on-year. With the stamp duty holiday ending in September, this year-on-year comparison was predictable, but it once again goes to highlight the scale at which the stamp duty holiday had fuelled the market through 2020 and for most of 2021.

The space race

The increase in prices is not only being put down to demand driven by the reduction in stamp duty but also the ‘space race’. The pandemic and its impact on working from home has created a fundamental change in internal migration patterns, with buyers seeking extra space, both internal and external. This has meant that demand in rural areas and locations that have not previously seen such significant price growth, is outstripping supply, putting pressure on prices.

Inflation and interest rates will temper the market

At the same time as we learn of housing price inflation, we know that we are potentially heading into a cost of living crisis as consumer prices continue to rise faster than salaries. Cost of living is reportedly above 4% for the year to October.

In a bid to control inflation, signals from the Bank of England make clear that higher interest rates can be expected in 2022. We have been told to expect baby steps in terms of interest rate increases in the next 12-18 months, but any increase is likely to help cool the housing market as mortgages become slightly more expensive. A return to stamp duty and higher interest rates, compounded by higher day-to-day costs, are likely to help take the heat out of the market. But this latest data once again reminds us of the old adage about property remaining a positive long term option in terms of investments.