Britain’s house prices rose 9.8 per cent in 2021 with an increase in cash terms of £24,500 – marking the biggest gain since 2003.
In December, prices rose 1.1 per cent from November, taking the average house price to a record high of £276,091 ($373,564), according to the latest Halifax House Price Index.
“The housing market defied expectations in 2021, with quarterly growth reaching 3.5 per cent in December, a level not seen since November 2006,” said Russell Galley, managing director of Halifax.
“In 2021 we saw the average house price reach record highs on eight occasions, despite the UK being subject to lockdown for much of the first six months of the year.”
Britain’s property market started 2021 with the difficult task of navigating through the third lockdown in England and similar restrictions in the rest of the country.
However, it was bolstered by Chancellor of the Exchequer Rishi Sunak’s stamp duty holiday, which lapsed in October, and UK buyers moving out of city centre locations to live in houses with gardens and more space. This was linked to people working from home seeking more comfortable surroundings.
Wales registered the strongest growth of any part of the UK last year, with prices surging by 14.5 per cent.
The weakest growth was in London, where values edged up just 2.1 per cent.
However, momentum is now expected to slow this year as British households face a cost-of-living crisis amid rising interest rates and higher taxation, energy bills and inflation.
“The big question for the housing market is not how well it performed last year but how it will perform as 2022 rings in the changes,” said AJ Bell financial analyst Danni Hewson.
“No one expects to see the kind of price growth delivered over the last 12 months. But without some major market disruptions, the stage is set for further rises.”
In a sign of what is to come, the number of mortgage approvals has fallen considerably over the last few months, down to the lowest level since June 2020 in November, as activity in the housing market eased following the rush caused by the stamp duty tax holiday.
Lenders sanctioned 67,000 mortgages in November, a slight dip from the 67,199 home loans approved in October, according to Bank of England data.
The threat of further rate interest rises rate rises – following the December uplift to 0.25 per cent – is also “nibbling away at the amount of debt people can take on”, said Ms Hewson.
In addition, many people who wanted to move because of perceived changes in family need have done so – indicating that demand may drop.
However, the market remains resilient, with new buyer enquiries rising by 13 per cent in November last year, while new listings are heading in the other direction.
A lack of available homes for sale, and historically low mortgage rates, has certainly helped to drive annual house price inflation in 2021, Mr Galley said.
“Looking ahead, the prospect that interest rates may rise further this year to tackle rising inflation, and increasing pressures on household budgets, suggests house price growth will slow considerably,” he said.
“Our expectation is that house prices will maintain their current strong levels but that growth relative to the last two years will be at a slower pace. However, there are many variables which could push house prices either way, depending on how the pandemic continues to impact the economic environment.”
