Average house prices in December rose by 10.8%, slightly up from the 10.7% growth recorded in November.

According to the Office for National Statistics’ (ONS) latest house price index, Wales reported the largest average house price growth at 13%, reaching a record level of £205,000.

This was followed by Scotland, where house prices rose by 11.2% over the year to December. This is slightly down from 12.1% in November but takes average house prices in Scotland to £180,000.

House prices in England rose by 10.7% over the year, with average house prices also at a record high of £293,000.

Within England, the South West had the largest annual house price growth, where average prices rose by 13.6% in the year to December, which is up from 12.8% in November.

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The lowest annual house price growth was in London, which came to 5.5% in December, which is slightly up from 5.1% in November.

However, London is still the most expensive of any region in the UK with average house prices now £521,000.

‘Squeezed affordability concerns’

Tomer Aboody, director of property lender MT Finance, said as property prices continued to increase, there was “danger that affordability is stretching beyond the means of many would-be buyers”.

He explained: “With inflation rising again to 5.5%, and expectations that it could climb considerably further, the possibility of a further interest rate rise in March looks even more likely.

“The housing market is likely to continue to be busy into the spring as buyers fight for every house to make the most of cheap rates before they disappear. That said, we don’t expect a further increase to result in any major hike in mortgage pricing overnight.”

He said areas outside of London had seen the “most significant levels of growth” but said that as many were returning to the office it would be interesting to see whether those number could be impacted as the allure of London returns.

Mark Harris, chief executive of SPF Private Clients, said: “Despite the global pandemic, the housing market thrived last year and there are still those who have not yet made their purchases. Squeezed affordability, however, would be a major issue, preventing first-time buyers in particular from getting on the ladder.

“Low mortgage rates have been one of the contributing factors to the housing boom and although some lenders are tweaking mortgage rates upwards on the back of higher money market rates, pricing remains competitive.”

He noted there was speculation that the Bank of England would raise interest rates again but it would remain to be seen what impact this may have on buyer confidence.

Stuart Law, chief executive of Assetz Group, said: “House prices are still on the rise while wages fail to keep pace with inflation. This is a dangerous dynamic for the market and particularly worrying for low income and first-time buyers.

“I expect interest rate growth to be cautious this year despite inflationary pressures, allowing low-cost mortgages to fuel market activity. But, this can’t continue indefinitely. If current dynamics persist, we will see more and more people locked out of the housing market unless we urgently tackle chronic undersupply.”

He added it was waiting on updates on planning reform, which was a “huge barrier for housebuilders”, and key to ensure developers could navigate cost pressures by having access to a wide range of financial products, especially peer-to-peer lending and specialist finance.