The average price of a property stood at £250,311 in October with prices up by 9.9% when compared to October 2020. Overall prices are up by more than £30,000 since the pandemic first struck.
Robert Gardner, Nationwide’s chief economist, said: “Annual house price growth remained elevated in October at 9.9%, albeit marginally lower than the 10.0% recorded in September. Prices rose 0.7% in month-on-month terms, after taking account of seasonal effects. The price of a typical UK home has now passed the £250,000 mark, an increase of £30,728 since the pandemic struck in 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.”
And Gardner warned that the outlook remains extremely uncertain.
He added: “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, as discussed below.”
Gardner’s warning follows increased speculation that the Bank of England’s Monetary Policy Committee (MPC) could increase interest rates in the coming months. The MPC is due to make its latest decision on Thursday.
Lenders are already bracing themselves for a hike in interest rates to 1% by the middle of next year. Nationwide said such an increase would see typical payments on a variable-rate mortgage rise by £64 a month.
Several mortgage lenders have been upping their rates in anticipation of the potential increase with Barclays, HSBC, NatWest and Lloyds Banking Group all making changes.
Ryan Myerberg, portfolio manager in Brown Advisory’s global sustainable fixed income team, warned that the increases could start as soon as this month.
He said: “The shift in the Monetary Policy Committee (MPC)’s language since their last meeting has been stark, with a number of key voices communicating hawkishly amid concerns about higher inflation and, perhaps more concerning, risks to a de-anchoring of medium-term inflation expectations.
“The signalling for a November hike has been strong enough for the market to price in action ahead of the meeting so the MPC, whether it intends to or not, may have no choice but to hike, despite some concerns about a slowdown in growth.”
But broker Mark Harris, chief executive of mortgage broker SPF Private Clients, said that any interest rate rise impact should be negligible in the short-term.
He said: “Mortgage applications remain robust even though all eyes are on the Monetary Policy Committee amid speculation there will be an interest rate rise tomorrow. The markets have already factored in at least one modest base rate rise, and a couple more by the end of 2022, with lenders raising their cheapest mortgage rates accordingly.
“Even if there isn’t a base rate rise this month, it is only a matter of time but with most borrowers on fixed rates, the immediate impact should be minimal.”
Indeed, just 20% of mortgages are currently on a variable rate, this is down from 70% in 2001.
This led Nicholas Christofi, managing director of Sirius Property Finance, to warn that there was no need for panic.
“As is often the case in the mortgage space, what comes down must eventually go up again and we may well start to see mortgage rates creep up over the remainder of the year,” he said.
“This may be a scary thought for a generation of homeowners and buyers who have only even experienced record low rates and mortgage affordability for over a decade now and we could see the current rate of house price growth slow as many take a more conservative approach to borrowing.
“But this is no cause for panic, mortgage rates ebb and flow and while there may be an increase, this is not a return to the 1990s. Mortgage rates will remain near to historic lows and regulations have dictated for some time that new borrowers are ‘stretch tested’ before being granted a loan to avoid any financial turmoil.”
