Residential property price growth looks set to slow sharply in the coming year.

The latest data from Halifax shows that annual house price growth hit a 17-year high as the market defied expectations in 2021. But interest rate hikes and wider cost of living increases will almost certainly put the brakes on the recent surge in values, according to various experts.

The 9.8% year-on-year increase for December was the biggest since July 2007 and represented the strongest calendar year growth since 2004, according to the lender.

Halifax said the average price for a property now stands at £276,091, a rise of more than £24,500 on December 2020 – the greatest increase in cash terms since March 2003.

Month-on-month growth in prices was 1.15% while the quarter-on-quarter increase of 3.5% was again the strongest since 2006, owed in part to the widening supply-demand imbalance.

Halifax said Wales was the strongest region for property price growth, with a rise of 14.5% to an average £205,579.

Greater London saw the slowest growth, of 2.1%, but prices in the capital, an an average of £525,351, remain the most expensive in the UK.

“The housing market defied expectations in 2021,” said Halifax managing director Russell Galley. “In 2021 we saw the average house price reach new record highs on eight occasions, despite the UK being subject to lockdown for much of the first six months of the year.”

“Looking ahead, with the prospect that interest rates may rise further in 2022 to subdue rising inflation, and with government support measures phased out, greater pressure on household budgets suggests house price growth will slow considerably,” he added.

This is a view shared by other property professionals.

Anthony Codling, founder of PropTech firm Twindig, said: “The Halifax House price index reached a record high in 2021 of £276,091 as a perfect storm of lockdowns, stamp duty holidays and shortages of homes for sale pushed house prices ever higher. However, the record rise of 2021 may be followed by the big squeeze of 2022 as rising energy bills, mortgage rates and inflation, frustrate family finances. We do not believe house prices will fall in 2022, but the big squeeze is likely to subdue house price growth in the coming months

Tom Bill, head of UK residential research at Knight Frank, commented: “The irony for the UK property market is that the milder the impact of Omicron, the greater the downwards pressure there will be on house prices. Mortgage costs will rise as pressure increases on the Bank of England to raise rates and more sellers will come forward as the prospect of further restrictions recedes, redressing the imbalance between low supply and high demand that has led to gravity-defying price growth in recent months.”

Iain McKenzie, CEO of The Guild of Property Professionals, remarked: “The housing market starts 2022 in a very strong position. Valuation requests from home-owners are a fifth higher than the year before, mortgage approvals are the highest they’ve been for years, and the pandemic appears to be on the wane.

“Further interest rate rises are likely this year, but while demand outstrips housing, we expect that prices will continue to rise this year, albeit at a much slower pace than we saw in 2021.”