House prices surged by 0.7% in February, taking economists by surprise and reversing the 0.2% decline recorded the previous month.

The Nationwide’s house price index shows the annual rate of house price growth rebounded to 6.9% from 6.4% in January, raising the average price to £231,061 – the highest on record.

Robert Gardner, Nationwide’s chief economist (pictured, below), admits the increase was unexpected.

“It seemed more likely that annual price growth would soften further ahead of the end of the stamp duty holiday, which prompted many people considering a house move to bring forward their purchase,” he says.

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The lender had expected activity and price growth to weaken, given that the purchase process typically takes several months.

Tax holiday

But it believes the tax holiday could still provide some momentum, particularly as there’s currently fewer properties on the market. Shifts in housing preferences could also boost demand, despite the uncertain economic outlook, says Gardner.

“Many peoples’ housing needs have changed as a direct result of the pandemic, with many opting to move to less densely populated locations or property types, despite the sharp economic slowdown and the uncertain outlook.”

He adds: “As a result, the outlook for the housing market is unusually uncertain. There is scope for shifting housing preferences to continue to boost activity, especially if there is further policy support in the budget.

“Nevertheless, if labour market conditions weaken as most analysts expect, it is likely that the housing market will slow in the months ahead.”

Chancellor Rishi Sunak is widely expected to extend the stamp duty holiday to the end of June in tomorrow’s announcement.

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