The average house price in the UK rose by a record amount between August and September, according to Rightmove. Houses were 0.9% more expensive on average in mid-September, compared to mid-August, and the total increase of £2,550 is the biggest since 2002 over that period in any year. The average price now stands at £294,834.
Although a stabilisation of house prices was expected in 2015, it seems the tight market is lifting costs, making it harder for first-time buyers to get on the housing ladder. Low borrowing costs, boosted by the Bank of England keeping interest rates low, at 0.5%, encourages high demand for housing, while the supply side is lacking.
On 10 September, the Bank of England's Monetary Policy Committee decided to keep the UK interest rate at its record low of 0.5%.
The committee has also repeatedly hinted that a rate rise might not take place until 2016, especially now that global economic growth seems to have slowed down. This means mortgage borrowing stays cheap, which encourages an increase in demand, tightening the housing market and lifting up prices.
A recent study by ING found that 89% of people in the UK are worried that it is becoming increasingly difficult to buy a home for the first time.
Mike Shipside, director and housing market analyst at Rightmove, said those who can afford to buy a house are keen to do so because of the low borrowing costs.
"High demand, lack of suitable supply and increasingly stretched affordability are leading to some extremes in market forces in different sectors and parts of the country," he said. "One of the effects is that those who own property that is in most demand, either by type or location, are seeing their values continue to rise.
"Their properties are rich in features and benefits that others want to buy, and as a consequence they are getting proportionately richer than either owners of less desirable homes or those who are not on the housing ladder at all."
Efforts by the government to boost supply and ease the market, such as adjusting rules around planning requirements and trying to encourage first-time buying rather than renting for a longer term, have failed to have a significant effect.