House Prices: Strongest Start to a Year Since 2005, Says Nationwide

                                          By Jack Woodfield

House prices could yet cool in 2022, but demand remains strong amid a shortage of properties

This has been the strongest start to a year for growth in house prices since 2005, new Nationwide data reveals.

Annual growth rose 11.2% in January, up from 10.4% in December, making it the fastest growth rate in January for 17 years. Prices also increased by 0.8% between December and January.

The average price for a property in the UK is now £255,556, and robust housing demand could make it problematic for first-time buyers looking to get onto the property ladder and for those looking to buy before renovating a house.

This increase comes against a backdrop of higher interest rates and surging inflation, obstacles which could yet lead to the housing market slowing in 2022.

“Housing demand has remained robust,” said Robert Gardner, chief economist at Nationwide, adding that “the stock of homes on estate agents’ books has remained extremely low, which is contributing to the continued robust pace of house price growth.”

Earlier this month, Rightmove also said that it was experiencing its busiest start to a year, with the number of prospective buyers enquiring about homes up 15% on this time last year.

Will House Prices Go Down in 2022?

House prices have soared during the Covid pandemic due to policies such as the the stamp duty holiday extension and the new mortgage guarantee, as well as the ‘race for space’ which has seen more people looking for bigger properties following the move to working from home.

And while house prices could yet stabilise in 2022, demand remains strong.

“Housing demand has remained robust,” said Gardner. “Mortgage approvals for house purchase have continued to run slightly above pre-pandemic levels, despite the surge in activity in 2021 as a result of the stamp duty holiday, which encouraged buyers to bring forward their transactions to avoid additional tax.”

However, the impact of soaring inflation and the rise in interest rates could yet prove influential too and make it more expensive to buy a house. The Bank of England is expected to increase interest rates again this week, having previously raised them in December for the first time in nearly three years.

Sundeep Patel, Director of Sales at specialist lender Together said: “With the cost-of-living squeeze upon us, spiking inflation and the oversubscription of properties continuing, we may see household bills and other more imminent expenses become the priority. This could lead to buyers having to put their property plans on hold until they can safeguard their finances and secure firmer footing.”

Gardner added: “While the outlook remains uncertain, it is likely that the housing market will slow this year. House price growth has outstripped earnings growth by a wide margin since the pandemic struck and, as a result, housing affordability has become less favourable.”

Prices Remain Challenging for First-Time Buyers

Growth has exceeded earnings growth over the past 12 months, and the ratio of house prices to average earnings has increased to a record high, Nationwide says.

A 10% deposit is now equivalent to 56% of total gross annual earnings, and this is proving a particularly changing disparity for first-time buyers.

Yorkshire Building Society says that UK house sales to first-time buyers reached their highest level for 19 years in 2021.

“Clearly, new buyers have not been deterred by the price of a typical first-time buyer home, which has increased by 9% to £222,997 in the year to October,” the building society said.

Where Have House Prices Risen the Most?

Mountain Ash in Wales is the place in the UK where house prices rose the most in 2021, according to Rightmove, which experienced a 31% increase in asking prices for homes.

Wales was also the regional asking price hotspot in 2021, with average prices up 10.5% in Wales compared to 2020. This was followed by the South West (9.6%) and the South East (9.1%).

Meanwhile, separate data from a review of Office for National Statistics (ONS) data by HouseholdQuotes, revealed that over the last 20 years, several London boroughs have undergone dramatic increases in house prices, none more so than Kensington and Chelsea, where prices have risen by £863,000.

Bexhill-on-Sea in East Sussex was the new supply hotspot in January, Rightmove says, with the number of new properties coming to market nearly double that of the same period last year.