Nationwide House Price Index: Riding a Wave of House Price Growth

Annual house price growth accelerated to 12.6% in February, up from 11.2% in January and the strongest pace since June last year. Prices rose by 1.7% month-on-month, after taking account of seasonal effects, the seventh consecutive monthly increase.

The price of a typical home rose above £260,000 for the first time in February, an increase of £29,162 over the past 12 months.

This is the largest ever annual increase in cash terms since the start of the Nationwide monthly index in 1991.

The price of a typical home is now £44,138 (20%) higher than in February 2020 – the month before the pandemic struck the UK.

Housing market activity has remained robust in recent months, with mortgage approvals continuing to run above pre-pandemic levels at the start of the year.

A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices.

The continued buoyancy of the housing market is a little surprising, given the mounting pressure on household budgets from rising inflation, which reached a 30-year high of 5.5% in January, and since borrowing costs have started to move up from all-time lows in recent months.

The strength is particularly noteworthy since the squeeze on household incomes has led to a significant weakening of consumer confidence.

Indeed, consumers’ view of the general economic outlook and prospects for their own financial circumstances over the next 12 months have plunged towards levels prevailing at the start of the pandemic, commented Robert Gardner, Nationwide’s Chief Economist.

Gardner continues, the economic outlook is particularly uncertain at present.

Nevertheless, it is likely that the housing market will slow in the quarters ahead.

The squeeze on household incomes is set to intensify, with inflation expected to rise above 7% in the coming months.

Indeed, there is scope for inflation to rise even further as events in Ukraine threaten to send global energy prices even higher.

Assuming that labour market conditions remain strong, the Bank of England is also likely to raise interest rates, which will exert a further drag on the market if this feeds through to mortgage rates.

Housing affordability has already become more stretched, in part because house price growth has been outstripping earnings growth by a wide margin since the pandemic struck.

The price of a typical home is now equivalent to 6.7 times average earnings, up from 5.8 in 2019.

Tom Bill, head of UK residential research at Knight Frank, said:

“I don’t expect a return to more muted house price growth until supply picks up and there are signs of that gradually happening While demand has been unrelenting over the last several months, higher levels of market valuations requested by prospective sellers since the start of the year indicate that supply will pick up, particularly as the spring market arrives.

We would therefore expect price growth to return to single digits later this year.

Meanwhile mortgage rates will inevitably rise and higher inflation, accelerated by the effects of the Ukraine conflict, will start to put downwards pressure on demand and house prices.

While the Bank of England may adopt a more risk-averse approach to raising the base rate given the geopolitical uncertainty, mortgage rates are still playing catch-up and lenders are likely to keep withdrawing their best products.”

Tomer Aboody, director of property lender MT Finance, says:

“Accelerated house price growth in February demonstrates that buyers are back in the swing of things after the Christmas break.

Competition among buyers is fierce, with multiple offers being received in many instances.

Some vendors are selling before finding somewhere to move to, in order to take advantage of high prices, and opting for rented accommodation until the dust settles.

With interest rates rising, affordability is becoming even more of an issue, particularly for younger buyers struggling to afford their first home.

Of course, the terrible war in Ukraine cannot be ignored, and how this might impact the UK.

With purses already squeezed as the cost of living rises, the Bank of England might reconsider at its proposed interest rate increases in forthcoming months, in order to minimise the hit on consumers.”

Phillip Stevens, director of Richmond estate agency Antony Roberts, says:

“While this data is behind the curve as it is based on completions, and there is probably a little more caution out there than these numbers indicate, buyers continue to face a lack of choice due to lack of stock.

While these figures show that the national average property price is rising, the reality is there isn’t one single market – what is happening with prices is very different depending on the profile of the property.

Flats without outside space are still struggling to sell and will come off in value whereas houses are few and far between and increasing in value.

As long as there is a shortage of supply and significant demand, pricing will be bullish.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, says:

“The very cheapest mortgage rates may be long gone, with several lenders raising rates as the general movement in money market rates is upwards but that is not putting off buyers who remain confident and keen to buy.

Rates remain at comparatively low levels from an historical perspective, so stretched affordability has not yet become a widespread issue although if prices continue rising at this pace, it may well become more of an issue.

With property prices continuing to rise, along with energy prices and the wider cost of living, there are fears that this won’t remain the case.

But with the Bank of England announcing plans to scrap its mortgage affordability test, in theory lenders will be able to lend more, helping first-time buyers in particular.

Fears that banks will act irresponsibly and lend much more than borrowers can afford to repay are likely to be wide of the mark.

Banks will keener to attract high income households with relatively low expenditure, who can best afford to cover increases to their mortgage payments.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says:

“Despite recent modest stock improvements, partly prompted by the rise in inflation and interest rates, the continuing overall shortage is constraining activity but supporting the acceleration in prices.

It is probably too early to gauge the likely impact of the war in Ukraine on the housing market but not much if the first few days are anything to go by.

We have already agreed several sales at fairly robust prices this week.

The expected additional rise in the cost of living driven by energy prices and possibly interest rates will reduce confidence to take on extra debt and make buyers even more determined not to overpay.”

Walid Koudmani, chief market analyst at financial brokerage XTB comments:

“Annual UK house price growth increased to 12.6% in February, from 11.2% in January with a month-on-month increase of 1.7%.

This continues to show the ongoing inflationary pressure on consumers which has led the price of a typical home to be 20% higher than February 2020 and which could start to significantly impact demand if the situation worsens as availability of homes continues to decline.”

Michael Bruce, CEO and Founder of Boomin, says:

“We’re riding a wave of house price growth at present, driven by a market that is experiencing very high demand for homes that just simply aren’t available.

It’s only natural that this wave will start to lose ferocity at some point, but there’s certainly no signs of that happening just yet, despite a squeeze on the cost of living and a double-digit increase in interest rates.”

CEO of Octane Capital, Jonathan Samuels, commented:

“Although two consecutive increases in interest rates is always going to be food for thought for the nation’s home buyers, what we’re currently seeing is consideration, not concern.

While some may have marginally adjusted the sums they are committing to borrowing, the sheer volume of new buyers entering the market remains very high and this is enough to keep house prices buoyant for some time to come.”

Director of Benham and Reeves, Marc von Grundherr, commented:

“There’s arguably never been a better time to be a homeowner as, despite all that’s been thrown at it, the UK property market continues to go from strength to strength.

This performance really is quite alarming when you consider the wider economic turmoil that we’ve faced for some years now and it proves that there really is no safer investment than bricks and mortar.

Even across London where market conditions have remained far more muted, values have continued to climb and the capital’s property market is now poised to enjoy an accelerated rate of growth over the coming year.”

Managing Director of HBB Solutions, Chris Hodgkinson, commented:

“Although top line market statistics paint a very positive picture, it’s important to remember that the UK property market is extremely fragmented in its nature.

The key to a successful sale is understanding your own local market landscape, the demand for homes and pricing in accordance with these factors.

Failure to do so and pricing too high will only see your home suffer from a severe lack of interest, a protracted period of time spent on the market and a higher chance of turbulence further down the transaction timeline.”

Managing Director of Barrows and Forrester, James Forrester, commented:

“Yet another increase in property values demonstrates the current strength of the UK property market and the deafening silence coming from the usual band of property market naysayers is no better testament to this overall health.

Despite many prophesying the end of the market due to Brexit, the pandemic and the end of the stamp duty holiday, amongst other things, we’re yet to see a chink appear in the armour of what is perhaps the most defiant and dependable property market in the world.”