House prices in the UK rose at a rate not seen since 2003 this summer, according to the latest ONS data. 

These figures, based on Land Registry final sale prices, show house prices jumped by 15.5% from July 2021 to July 2022. This is a significantly higher than the 7.8% annual increase recorded in June 2022.

While this is the highest annual inflation since May 2003, the ONS has said that this rise was largely due to market conditions the year before, which saw prices dip in from June to July 2021, due to the changes around the stamp duty holiday. 

These figures also have more of a time lag  than the housing market data produced by the main mortgage lenders, estate agents and property search websites. These have shown a slowdown in house price inflation over the past two months, as the cost of living crisis has started to bite. 

The ONS data shows that average UK house price increased by £6,000 between June and July this year, compared with a fall of £13,000 between the same months last year. 

Its figures show the average UK house price was £292,000 in July 2022, which is £39,000 higher than the same month the previous year. 

Average house prices increased over the year in England to £312,000 (up by 16.4%) and in Wales to £220,000 (up 17.6%). In Scotland the average house prices was £193,000 (up 9.9%) while in Northern Ireland it was £169,000 (up 9.6%). 

Many lenders pointed out that the rate of increase recorded in these figures was “unsustainable” particularly given cost of living pressures and rising interest rates. 

MT Finance commercial director Gareth Lewis says: “House prices tend to rise where there is demand combined with lack of stock and these figures illustrate that.

“What we are seeing now are those pressure points of rising interest rates and the cost of living which haven’t yet been factored into transactional flow. Purchases which completed in July would have been agreed in April where many would have been blissfully unaware as to what was to come.

“This price growth is unsustainable because of the impact of affordability and what buyers are willing to pay for a mortgage. This, in turn, will have a dampening effect on values, which could be the tipping point for the market.”

Hargreaves Lansdown senior personal finance analyst Sarah Coles says: “House price growth has doubled in a month, growing faster than for 19 years, but all is not what it seems. This is the latest step in a house price hokey cokey, and is the result of changes to the stamp duty holiday last summer. It doesn’t affect the outlook for the market, which is facing real challenges.”

Coles says that a worsening economic picture could impact the housing market going forward. “If the Bank of England raises rates again next week as expected, it’s going to make higher house prices even less affordable. We can expect the maths to stop adding up for increasing numbers of buyers, and their mortgage lenders, which could dampen price rises.

“We’re likely to reach a tipping point if we hit a recession. Growth was flat for the most recent quarter, and lower than expected, so while we haven’t tipped over into a shrinking economy, we may well be on the verge of it. High employment levels have been key to the health of the property market, so if jobs become increasingly insecure it could make all the difference.”

Even, a specialist lender for FTBs said that these latest price rises were making it harder for people to get on the housing ladder. Even’s chief customer officer Ben Bailey says: “The financial pressure on consumers is ratcheting up, and climbing interest rates are increasing the cost of homeownership. But even this once in a generation economic crisis is not enough to take the steam out of house prices.

“The reality is that prospective first time buyers are still being clobbered by market conditions. Generation Rent faces rising household bills and skyrocketing rents, making it harder than ever to save a deposit. And all the while, house prices are climbing out of reach.

“Those who can’t fall back on the Bank of Mum and Dad might be forgiven for losing hope of ever affording a home – not least as the Government removes its support for first time buyers with the end of Help to Buy. But it is important to understand there are still other options available to exit the rental market – whether that’s products designed to help boost deposits, guarantee mortgages or the First Homes scheme. Seeking independent advice from a broker should be the first port of call.”

Estate agents point out that the prospect of increase rate rises in creating demand from buyers who know they will need to move in the next few years. This demand coupled with a lack of supply in underpinning these price rises. 

Chestertons managing director Richard Davies says: “In July, we saw a clear uplift in the number of viewings and the number of buyers registering with our branches. This increase in market activity suggests that, despite economic challenges and the changes to mortgage rules, buyer appetite remained strong.

“One driving factor behind house hunters wanting to move sooner rather than later are interest rates. With the Bank of England putting up rates more than once this year, buyers have established a stronger sense of urgency. After many house hunters put their search on hold or changed priorities over the past two years, we have since been registering enquiries from families wanting to finally make their move a reality as well as international students, international buyers and office workers who require a pied-à-terre closer to work again.”

Former RICS residential chairman and London estate agent Jeremy Leaf adds: “Although the numbers are strong, it’s a little early even for this, the most comprehensive of all the housing market surveys, to reflect the change in activity we’ve seen on the ground in the past few months.

“The balance of power is shifting more towards the buyer but what these numbers do show is that there is still plenty of underlying strength which will mean a serious price correction is less likely. A gentle softening has been happening and is likely to continue to do so over the next few months.”