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UK house prices hit a record £282,753 in March but are set to fall over the next year as buyers face higher interest rates and cost compression of life, Halifax said.

The average cost of a home rose 1.4% in February, according to the Halifax Monthly Property Index, and is 11% higher than a year ago, the biggest annual increase since the 2007 financial crisis.

The new record is around £28,113 higher than a year ago, not far off the average UK earnings over the same period of £28,860.

March was also the ninth straight month in which prices rose, with monthly gains at their highest level since September, when they rose 1.7%. Average prices have risen by £43,577 since the first coronavirus lockdown in 2020.

The sustained increase was driven by a shortage of homes for sale and an increase in demand for larger homes linked to the pandemic ‘race to space’. Hybrid work trends and increased time spent at home have prompted many people living in cities to consider moving to more rural areas.

Halifax Managing Director Russell Galley said: “While there is recent evidence of more homes on the market, the fundamental problem remains that too many buyers are looking for too few properties.

However, Halifax said the cost of living crisis – with households squeezed by rising energy and food bills – was likely to dampen house price increases in the year ahead.

The UK’s annual inflation rate hit 6.2% in February, the highest in three decades, and the Bank of England said that figure could rise to 10% later this year, which would exert a additional pressure on the standard of living.

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This will likely result in higher interest rates as policymakers try to control prices. The Bank of England had already raised interest rates to pre-pandemic levels of 0.75% last month.

“Over the long term, we know that the performance of the housing market remains inextricably linked to the health of the broader economy,” Galley said. “There is no doubt that households are facing a severe squeeze on their real incomes, and the difficulty for policymakers of having to support the economy while controlling inflation is now even more acute due to the impact of the war in Ukraine.

“Buyers therefore face the prospect of higher interest rates and a higher cost of living. With affordability measures already extremely tight, these factors should cause house price inflation to slow over the next year.

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