The latest House Price Index (HPI), based on Government figures released today, shows that average house prices in the UK increased by 3.4 per cent in the year up to June – compared to 1.1 per cent in May.

The North-East had the lowest annual growth, with house prices increasing by 1.7 per cent, with a much stronger monthly increase of 2.9 per cent.

Monthly house price inflation in the UK is calculated using data from HM Land Registry, but figures are behind schedule due to Covid-19.

Darlington Building Society today welcomed the recovery in house prices while remaining cautious about the recovery being sustained at the same level in the medium and longer term.

The Society believes the June HPI data shows how quickly homemovers pushed on with delayed transactions once the market reopened and that the recovery is likely to be sustained in the short term due to three key factors:

  • The release of pent-up demand from people who were already planning to buy and whose financial circumstances have not changed during lockdown.
  • The temporary cut in stamp duty, raising the starting threshold from £125,000 to £500,000.
  • And “lockdown behavioural changes” with people looking for bigger properties with more outdoor space.

Darren Ditchburn, Darlington Building Society’s Chief Customer Officer, explained: “We are seeing significant cultural changes because of the pandemic, such as the impact of people working from home.

“That trend is going to continue, but people are becoming sick of working from the kitchen table, so they are, therefore, looking for an additional bedroom to convert into office space.

“People are also realising they no longer have to work from city centres – they can move to the outskirts, into more spacious properties, with rural or coastal areas becoming increasingly popular. This changing demographic is generating increased demand and therefore will contribute to rising house prices.”

However, Mr Ditchburn said there was reason to be more cautious about the longer-term outlook on property prices because of the economic turmoil resulting from the end of the Government’s furlough scheme in October, and the combined possibility of further lockdown restrictions and a no-deal Brexit.

“We have got some pretty major headwinds coming towards us. That economic uncertainty will put doubt in prospective buyers’ minds and dampen demand,” he said.

But Mr Ditchburn believes any future falls in house prices will be modest because the UK continues to have a critical shortage of housing stock, meaning supply and demand will go on underpinning the market.

“In many ways, there’s never been a better time to buy, and it’s really positive to see the recovery, but the bigger picture is one of cautious optimism,” he said.

Mr Ditchburn said a worrying consequence of the rise in house prices, coupled with economic uncertainty, was that it would take home ownership further out of reach for many younger people.

“The younger generation is being disproportionately impacted by job losses, and with a lack of high loan-to-value mortgages on the market and further increases in house prices, I really feel for them. Lenders have to continue to support first-time buyers,” he said.

Mr Ditchburn also sounded a warning to buyers to avoid getting into bidding wars, created by the increased level of demand and advantageous conditions such as the stamp duty holiday.

“People need to be careful not to pay inflated prices and find themselves in negative equity at some point in the future,” he said.