House prices continued to increase strongly in October, with average prices topping £250,000, according to Nationwide.
The building society also says increased interest rates would have a limited impact on consumers’ spending ability.
Typical house prices rose by 9.9% compared with 2020, to reach £250,311, a rise of 0.7% compared with September. Annual growth in September was 10%.
House prices are now £30,728 higher than March 2020.
‘Demand for homes has remained strong, despite the expiry of the stamp duty holiday at the end of September. Indeed, mortgage applications remained robust at 72,645 in September, more than 10% above the monthly average recorded in 2019. Combined with a lack of homes on the market, this helps to explain why price growth has remained robust,’ says Robert Gardner, Nationwide chief economist.
‘The outlook remains extremely uncertain. If the labour market remains resilient, conditions may stay fairly buoyant in the coming months – especially as the market continues to have momentum and there is scope for ongoing shifts in housing preferences as a result of the pandemic to continue to support activity. However, a number of factors suggest the pace of activity may slow. It is still unclear how the wider economy will respond to the withdrawal of government support measures. Consumer confidence has weakened in recent months, partly as a result of a sharp increase in the cost of living.
‘Even if wider economic conditions continue to improve, rising interest rates may exert a cooling influence on the market, though the impact on existing borrowers is likely to be modest.
‘Providing the economy does not weaken significantly, the impact of a limited rise in interest rates on UK households is likely to be modest. This is partly because only a relatively small proportion of borrowers will be directly impacted by any change. Most lending on personal loans and credit cards is on fixed rates or tends to be unaffected by movements in the Bank Rate. Similarly, the vast majority of new mortgages have been extended on fixed interest rates in recent years.
‘The share of outstanding mortgages on variable interest rates has fallen to its lowest level on record, at about 20%, down from a peak of 70% in 2001 and 60% in 2011. Moreover, even a 0.4% increase in rates to 0.5% is likely to have a modest impact on most borrowers who are on variable rates. For example, on the average mortgage, an interest rate increase of 0.4% would raise monthly payments by £28 to £625 though a rise of Bank Rate by 0.9% to 1% would see typical payments go up by a more substantial £64 to £660, an extra £765 per year.’
The Office for National Statistics said average house prices had previously broken the £250,000 barrier, with an average of £264,000 in August, while rival building society Halifax said the figure had been reached in October 2020.
The Office for Budget Responsibility has forecast that house prices will rise by 8.6% this year, before slowing to 3.2% in 2022 and 0.9% in 2023, before rising each year from 2024 to 2026.
