The average price of a UK property has hit a new record high of £276,091, according to the latest Halifax House Price Index.

House prices increased by more than £24,500 over the course of 2021 to hit the record at the end of December, the largest annual cash rise since March 2003.

December’s figure reflected a 1.1% monthly increase from November, the sixth consecutive month of growth, as well as a rise of 9.8% compared to December 2020.

Halifax managing director, Russell Galley, said the housing market had “defied expectations” in 2021, with quarterly growth also reaching 3.5% in December, a level not seen since November 2006.

“In 2021 we saw the average house price reach new record highs on eight occasions, despite the UK being subject to a ‘lockdown’ for much of the first six months of the year,” Galley noted.

“The lack of spending opportunities afforded to people while restrictions were in place helped boost household cash reserves. This factor, alongside the stamp duty holiday and the race for space as a result of home working, will have encouraged buyers to bring forward home purchases they’d maybe planned for this year.

“A lack of available homes for sale, and historically low mortgage rates, have also helped drive annual house price inflation to 9.8%, its highest level since July 2007.”

Halifax’s index also suggested that for 2022, the prospect of further interest rate rises to tackle rising inflation, as well as increasing pressures on household budgets, suggest house price growth will “slow considerably”.

“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,” added Galley. “However, there are many variables which could push house prices either way, depending on how the pandemic continues to impact the economic environment.”

Commenting on the Halifax findings, Hargreaves Lansdown senior personal finance analyst, Sarah Coles, said that higher inflation could deal a “double whammy” to house prices.

“It costs more to make ends meet, so people have less cash to save for a property move, and struggle to afford a bigger mortgage,” she said. “At the same time, higher inflation is likely to persuade the Bank of England to raise rates, pushing up mortgage costs too.

“We expect inflation to rise to as much as 6% in the spring, but an awful lot will depend on how much the energy price cap is hiked in April, and whether any support from the government is forthcoming. More support could keep a lid on inflation, while runaway gas prices, accompanied by increases in the cost of everything from petrol to fresh food and furniture could push inflation even higher.

“The market is currently pricing in a rate rise in February to 0.5%, with more rises through the year. Right now, mortgage rates have lifted from record lows, but remain incredibly cheap. With more rate rises on the cards, we could see mortgages become less affordable, which will put the brakes on the housing market.”

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