Average UK house price hits record high

The average house price has tipped over 196,000 for the first time
The average house price has tipped over 196,000 for the first time

The average house price has tipped over £196,000 for the first time as property values hit another new record in October, Nationwide Building Society has reported.

Across the UK, the typical property value increased by 0.6% month-on-month to reach a new high in cash terms, of £196,807.

House prices in October were 3.9% higher than a year earlier, accelerating from annual growth of 3.8% recorded in September.

Robert Gardner, Nationwide’s chief economist, said that over the past five months, annual price growth has remained in a fairly narrow range between 3% and 4% - which is broadly in line with longer term earnings growth.

He said: “While this bodes well for a sustainable increase in housing market activity, much will depend on whether building activity can keep pace with increasing demand.”

A separate report from the National House Building Council (NHBC), a warranty and insurance provider, has found that the number of new homes being registered with it so far this year is 9% higher than a year ago.

The NHBC has said that housebuilding activity is on track to grow to its best levels since 2007 this year.

Mr Gardner said that rock bottom mortgage rates are helping to keep people’s home loan repayments relatively affordable and close to the long-term average as a share of take-home pay, despite the upward march in house prices.

He said that figures from the Council of Mortgage Lenders (CML) suggest that nearly 90% of new mortgages taken out over the past 12 months have been on fixed rates.

Mr Gardner said: “This is probably a reflection of ongoing uncertainty about the precise timing of UK interest rate increases as well as a desire to lock in low interest rates.”

He continued: “Fixed rate deals are most popular amongst first time buyers for whom certainty over monthly payments is likely to be particularly important. Indeed, over the past 12 months 95% of new mortgage lending to first time buyers was on fixed rates.”

As a result of the popularity of fixed-rate mortgage deals, the proportion of outstanding mortgages on variable interest rates has edged down from almost 70% in mid-2012 to almost half in mid-2015, he said.

The high proportion of home owners on fixed-rate deals should help to insulate many households from the immediate impact of any possible rise in interest rates.

But it is also important to note that the majority of recent fixes are for relatively short time periods, with the bulk of them being being deals lasting for just two years, Mr Gardner said.

Mr Gardner said: “Nevertheless, the housing market should be able to cope with higher interest rates in the year ahead, provided the increase is modest and the economy and the labour market remain in good shape.

“Guidance from the Bank of England suggests that the increase in interest rates is likely to be gradual, and that they are expected to settle at a level somewhat below the average prevailing before the financial crisis, which should help ensure borrowing costs remain manageable.”

Use the Nationwide Building Society house price calculator (updated quarterly).