"Even if economic conditions continue to improve, rising interest rates may exert a cooling influence on the market."
As a result, house prices are now almost 15% above the level prevailing in March last year when the pandemic struck the UK.
Robert Gardner, Nationwide's chief economist, said: “There have been some signs of cooling in housing market activity in recent months. For example, the number of housing transactions were down almost 30% year-on-year in October. But this was almost inevitable, given the expiry of the stamp duty holiday at the end of September, which gave buyers a strong incentive to bring forward their purchase to avoid additional tax.
“Indeed, activity has been extremely buoyant in 2021. The number of housing transactions so far this year has already exceeded the number recorded in 2020 with two months still to go and is actually tracking close to the number seen at the same stage in 2007, before the global financial crisis struck.
“Moreover, underlying activity appears to be holding up well. The number of mortgages approved for house purchases in October was still running above the 2019 monthly average. Early indications also suggest that labour market conditions remain robust, despite the furlough scheme finishing at the end of September. If this is maintained, housing market conditions may remain fairly buoyant in the coming months, especially since the market has momentum and there is scope for ongoing shifts in housing preferences, as a result of the pandemic, to continue to support activity.
“But the outlook remains uncertain, where a number of factors suggest the pace of activity may slow. It is unclear what impact the new ‘Omicron’ variant will have on the wider economy. While consumer confidence stabilised in November, sentiment remains well below the levels seen during the summer, partly as a result of a sharp increase in the cost of living. Moreover, inflation is set to rise further, probably towards 5% in the coming quarters.
“Even if economic conditions continue to improve, rising interest rates may exert a cooling influence on the market. Indeed, house price growth has been outpacing income growth by a significant margin and, as a result, housing affordability is already less favourable than was the case before the pandemic struck."
Anna Clare Harper, chief executive of property consultancy SPI Capital, commented: "House price growth rose slightly to 10% in November, despite the recent end of the temporary stamp duty holiday. This strong growth may seem surprising since transactions fell to a nine-year low in October 2021.
"The data suggests that the temporary stamp duty reduction designed to combat the impacts of Covid on the housing market were a catalyst, but not the cause of recent house price growth. This measure was just one factor of many affecting house prices.
"Other factors are more significant: a severe shortage of quality housing, and the wide availability of cheap finance. The result is that demand exceeds supply and house prices continue to rise.
"So what next? Overall, it is likely that the pace of growth slows, in particular seasonally through the winter months. However, growth is likely to continue while interest rates remain low, since the cost of holding on to a property is cheap, and competition amongst lenders means low cost, fixed rate mortgages are widely available.
"Perhaps the biggest problem the housing market faces going forward is the shortage of available stock, which means that prices are likely to remain strong and continue to grow, although that growth may slow."
Guy Harrington, CEO of residential lender Glenhawk, added: “Homeowners should enjoy the ongoing house price growth bonanza while it lasts. Whilst the fundamental driver of this rampant growth remains undersupply, which has been exacerbated by inflationary pressures and which the government seems incapable of addressing, 2022 is likely to be the year that economic reality finally bites. Interest rates will have to go up in Q1, which will slow the mortgage market and put signficant pressure on consumers, whilst working from home will slowly lose its lustre, driving the urban living trend.”