House prices climbed to a record high of over £256k
Good old bricks and mortar continues to provide a sound investment despite the economic maelstrom of Covid with stored up savings and high demand driving the surge. Analysts predicted the rises will continue this year but at a lesser pace as the cost of living crunch bites. Nationwide Building Society yesterday outlined the house price momentum as it reported that in March the price of a typical UK home climbed to a record high of £265,312.
The £33,178 year on year rise amounts to a £962 billion boom for Britain’s 29 million homes.
The surge is all the more extraordinary as household budgets are being squeezed like never before, with prices rising at their fastest rate for 30 years due to crippling fuel, energy and food costs – and the average UK salary has increased by just 0.3 percent to £25,971.
Mortgage costs are also rising after the Bank of England raised interest rates three times in four months to try to help lower that price inflation – yet these factors have not yet dampened the acceleration in house price growth.
Instead Nationwide said roaring property prices have grown by 14.3 percent in the last 12 months, the fastest annual pace since 2004.
According to the Committee on Climate Change in 2019 there are 29 million homes in the UK, meaning the nation’s residential property market may have increased in value in 12 months by a staggering £962 billion.
Nationwide said property prices have grown by 14.3%
Wales (15.3 percent), south-west England (14.4) and East Anglia (14.2) boasted the UK’s highest rates of growth, while London (7 percent) had the lowest rate.
Yet the downside is that price gaps between different property types are also widening – meaning it’s becoming harder for homeowners to trade up.
Robert Gardner, Nationwide’s chief economist, said March 2022 saw the strongest pace of increase since November 2004, remarking: “Prices are now 21 percent higher than before the pandemic struck in early 2020.
“The housing market has retained a surprising amount of momentum given the mounting pressure on household budgets and the steady rise in borrowing costs.
“The number of mortgages approved for house purchase remained high in February at around 71,000, nearly 10 percent above pre-pandemic levels.
“A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices. The continued buoyancy of housing demand may in part be explained by strong labour market conditions (and) wage growth has accelerated.
The number of mortgages approved remained high in February
“The significant savings accrued during lockdowns is also likely to have helped prospective homebuyers raise a deposit – an extra £190 billion of deposits over and above the pre-pandemic trend.
“This is equivalent to around £6,500 per household, although it is important to note that these savings were not evenly spread, with older, wealthier households accruing more of the increase.”
However, giving a note of caution he added: “We still think the housing market is likely to slow. The squeeze on household incomes is set to intensify, with inflation expected to rise further.
“Moreover, assuming labour market conditions remain strong, the Bank of England is likely to raise interest rates further, which will also exert a drag on the market if this feeds through to mortgage rates.”
Nationwide also say an average detached home’s value has increased by £68,000 since early 2020, while the average price of a flat has increased by £24,000.
Mr Gardner said: “Consequently, it is becoming more difficult for existing homeowners to trade up, with the price gaps between different property types now at a record high.
“This is particularly acute for those looking to move from flats to terraced houses, where the price gap has more than doubled since the onset of the pandemic (from around £12,000 to over £25,000).”
Estate agents say the price climb is ‘probably the peak’
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said the housing market was going from “strength to strength” but that March will “probably mark the peak”.
She explained: “For starters, mortgage rates look set to rise further in the coming months. In addition, we expect housing demand to be hit by a sharp drop in households’ real disposable incomes.”
Alex Lyle, director of estate agency Antony Roberts, said: “Prices continue to rise in the family house market in particular (but) ambitious or inflated pricing of flats means they can easily get stuck.”
Tom Bill, head of UK residential research at Knight Frank, said: “Despite the exceptionally strong growth seen over the last year, a housing market slowdown is in the post.
“The cost-of-living squeeze and rising mortgage rates will undoubtedly take their toll later this year. As we move beyond Covid and supply builds, this will also mean that house price growth becomes less eyebrow-raising.”
Karen Noye, mortgage expert at Quilter, said: “While house prices so far appear undeterred, the challenging circumstances we are currently facing may finally see the start of a slowdown.”
Mike Scott, chief analyst at estate agency Yopa, said: “The housing market cannot ignore the wider economy forever and we expect a slowdown in the second half of the year, but no significant falls in prices.”
Andrew Montlake, managing director of mortgage broker Coreco, said: “The jobs market is strong but the once-in-a-generation cost of living crisis and rising interest rates will almost certainly start to calm activity levels ahead.”
Guy Gittins, CEO of Chestertons, said: “Not even half way into March we had already witnessed a spike in buyer enquiries and sales compared to the same time period last year.”
Jason Tebb, from property search website OnTheMarket.com, said: “As we approach Easter we’re seeing an uptick in new homes coming to market. However, this time around appetite from buyers is stronger as the historic lack of stock means demand is still outweighing supply.”
While Gráinne Gilmore, head of research at Zoopla, said demand remains “elevated” as Covid lockdowns bolstered an “appetite” for extra internal and external space.
Comment by Jeremy Leaf
Nationwide’s house price index is respected for its accuracy and reliability, but its latest report has a whiff of yesterday’s news.
It shows prices rising strongly based on mortgages granted for sales agreed months ago, rather than reflecting what’s happening at the sharp end today.
There has been a mismatch between supply and demand over the last 18 months, but this is now balancing out.
Our offices have seen the usual spring bounce. It wasn’t as high as expected but there are still plenty of buyers for every correctly priced house.
We are seeing strong demand for larger family homes and brand new homes from affluent existing and aspiring owners, many of whom built up extra savings and equity during the pandemic.
Price growth varies with the type of property. The average home price went up by 9.6 percent over the year to January, with flats up 5.1 percent, the Office for National Statistics says. But detached houses rose 12.6 percent on average, while new-build home prices soared by an eye-watering 24.5 percent.
People looked to buy houses with more space after the pandemic
Rising interest rates, inflation and wider concerns about the impact of the terrible events in Ukraine have put a dampener on transactions recently.
Some buyers are tightening their belts due to the cost-of-living crisis and this will halt growth. Nevertheless, the market will be sustained by stock shortages.
The Government has a target of building 300,000 new homes a year to boost supply, but it was falling well short even before Covid. Listings are on the rise as sellers try to exploit today’s record prices, but stock is not coming to market fast enough to meet demand.
Good quality properties remain in short supply, which means a major correction in prices is highly unlikely.
I don’t expect recent dramatic price increases to continue, despite Nationwide’s report. The average property costs 9.1 times earnings in England, up from 7.9 times a year ago and 3.5 times in 1997, official figures show.
The longer-term prospects for the housing market and economy remain solid, though, as the Covid-inspired “race for space” is definitely not over yet.
• Jeremy Leaf is a North London estate agent