A rush to beat the end of a tax holiday, low interest rates and a pandemic-driven boost in demand turned the UK housing market into the “wild west” this month, pushing up house price growth to its fastest pace in nearly 17 years, the Nationwide Building Society has revealed.

The UK Nationwide house price index rose 13.4 per cent in June compared with the same month last year, the biggest jump since November 2004.

Prices increased 0.7 per cent compared with the previous month and about 5 per cent compared with March, pushing the average residential property price to £245,432 — a new record high.

Tobi Mancuso, director of property investment company Track Capital, said the housing market was “like the wild west at the moment — and properties are flying off the shelves whether they’re good, bad or ugly”.

“A scarcity of properties and the stamp duty holiday has created a situation where buyers feel like they’re in the last chance saloon, creating panic buying and pushing up asking prices,” he added.

House price growth has accelerated since July when the government introduced the stamp duty exemption on the first £500,000 of primary residential property purchases. The full stamp duty holiday ends this month, and it is tapered before it returns to the original rates on October 1, meaning buyers can save up to £15,000 until Wednesday.

Line chart of Annual % change showing Nationwide house price index rose at the fastest pace since 2004

Earlier in the month Andy Haldane, the outgoing chief economist at the Bank of England, said in a webinar organised by Glasgow university that the UK housing market was “on fire” and likely to remain strong as long as it was supported by increased demand from richer households with more savings, government support and low interest rates.

Northern Ireland and Wales saw the largest annual gains in the second quarter, while Scotland and London registered the weakest growth, Nationwide reported. House price growth in the outer south-east region, which includes cities such as Brighton, Oxford, Winchester and Southampton, registered its first double-digit increase since 2014, as the race for more space continues with more people working from home.

Jonathan Hopper, chief executive of property adviser Garrington Property Finders, said that “in parts of the UK house price inflation has reached fever pitch, with estate agents in the most in-demand rural and coastal areas reporting prices ramping up almost by the week”.

House prices are close to a record high relative to average incomes, Nationwide data showed. “This is important because it makes it even harder for prospective first time buyers to raise a deposit,” said Robert Gardner, Nationwide’s chief economist. He explained that a potential buyer earning the average wage and saving 15 per cent of take home pay would now take five years to raise a 10 per cent deposit.

Line chart of  First time buyer price earnings ratio showing UK house prices are close to a record high relative to average incomes

Many expect the market to soften after the government support for housing and jobs expires in September.

However, other factors are likely to keep prices up in the near term. “Consumer confidence has rebounded while borrowing costs remain low. This, combined with a lack of supply on the market, suggests further upward pressure on prices,” said Gardner.

Separate data published by the Bank of England on Tuesday showed consumers borrowed in May more than they paid off for the first time since last summer as the easing of Covid-19 restrictions boosted spending and reduced savings.

Consumers’ net borrowing was £0.3bn in May, up from a net repayment of £0.2bn in the previous month and the first positive figure since last August.

The Bank of England also revealed that net mortgage borrowing “bounced back” in May, following variability in the previous couple of months in anticipation of the reduction in stamp duty ending. Mortgage approvals also rose in May compared with the previous month and remain well above pre-pandemic levels.