Insufficient supply of new houses coupled with a continued strong labour market and historically still low interest rates have combined to push annualised house price inflation to 17.8% in the latest monthly house price survey from Halifax.
The average house increased in value by 1.6% in February, sending the seasonally adjusted average price to £148,089.
The Bank of England’s interest rate increases announced in November and January have had some impact on affordability, with the average share of household income needed to cover mortgage payments increasing to 15.5% from 13.9%.
However, the average cost of mortgage debt as a proportion of income is still well below the long-term average of 21%, Halifax points out.
The Bank of England's base rate would have to rise to 7.75% in order for mortgage debt as a proportion of income to rise to the long-term average, Halifax adds.
The number of property transactions fell 16% last year, yet construction of new homes continues to fail to keep up with demand, even as the number of houses completed last year rose to the highest level since 1997.
House price inflation pushed above the IHT threshold increased by 390,000 in the past year, taking the total number to nearly 2 million nationwide.
And it is not just a problem of London and the Southeast: two-thirds of those properties which increased in value above the threshold in the past year were situated in other regions.
If IHT had been indexed to house price inflation since 1993, it would now be at the level of £358,500, rather than the actual £255,000 level, Halifax’ research suggests.
Stamp duty is another tax that has benefitted the Treasury through bracket creep.
The £60,000 stamp duty threshold would now be £143,400 if indexing were in place.
Instead, 2003 marked the first year in which every first time buyer, FTB, had to pay the tax at an average amount of £1,000, or 6% of the average deposit. In 1993 65% of sales involved houses valued below the stamp duty threshold, including virtually all FTB properties.
Halifax says 500,000 transactions in 2002 could have avoided stamp duty if indexation had been in place.IFAonline
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Some 2,000 consumers affected