UK house prices have risen by their fastest annual rate in seven years, driven by demand for bigger homes outside the city and a temporary stamp duty holiday, according to the Nationwide Building Society.

The UK Nationwide house price index rose 1.8 per cent in May compared with the previous month, bringing the average house price to a record £243,000, up £24,000 over the past 12 months.

The average house price accelerated by 10.9 per cent compared with May last year, up from 7.1 per cent the previous month, its fastest pace since August 2014.

“Records are melting in the white heat of the property market’s boom,” said Jonathan Hopper, chief executive of Garrington Property Finders, an estate agents, adding that agents based in desirable rural and coastal areas have been “deluged with inquiries and prices are spiking”. 

Line chart of Annual % change showing UK house prices rise at double digit rate in May

The growth is partly a result of the housing tax break, introduced in July 2020 to kickstart the housing market after a collapse in home sales at the start of the coronavirus pandemic.

The policy exempts the first £500,000 of any property purchase in England or Northern Ireland from stamp duty land tax, in place until the end of June. A £250,000 tax-free limit will continue to the end of September. 

The rise surpassed forecasts by a Reuters’ poll of economists, which predicted a 0.8 per cent monthly increase and 9.2 per cent annual growth.

Robert Gardner, Nationwide’s chief economist, said people moving to larger properties as they spend more time working from home also contributed to the surge in house prices.

“It is shifting housing preferences, which is continuing to drive activity, with people reassessing their needs in the wake of the pandemic,” he said.

Nationwide reported that a third of those moving or considering a move were look at different areas, with nearly 30 per cent wanting to access a garden or outdoor space more easily.

Lucy Pendleton, property expert at independent estate agents James Pendleton, said families “are still feeling the pinch of snug properties”.

“This is where the growth is coming from and there are still hordes of people chasing the dream of a big move this summer,” she added.

Gardner expects the housing market’s near-term outlook to be “buoyant” supported by the tax break, a low supply of housing stock and continued government income support.

Low borrowing costs have improved affordability despite surging prices. Data from the Bank of England showed that in March rates on newly drawn mortgages were only marginally up from a record low reached in August 2020.

Mark Harris, chief executive of mortgage broker SPF Private Clients, reported that mortgage lender Platform is launching the cheapest ever two-year fixed rate this week at 0.95 per cent.

“Rates this low will continue to support the market, while the increased availability of low deposit mortgages will assist first-time buyers who are finding rising house prices increasingly difficult to deal with,” he said.



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