House prices increased yet again in January, rising by 11.2% over the year, the latest data from Nationwide has revealed.
According to the mortgage lender, house prices climbed by 0.8% from December meaning January was the strongest start to the year for residential property price growth since 2005.
The average UK house price, according to the Nationwide House Price Index, is now £255,556.
Robert Gardner, Nationwide’s chief economist, said: “The total number of property transactions in 2021 was the highest since 2007 and around 25% higher than in 2019, before the pandemic struck.
“At the same time, the stock of homes on estate agents’ books has remained extremely low, which is contributing to the continued robust pace of house price growth.”
He thinks, despite this early growth, the market will most likely start cooling as 2022 progresses.
“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,” he explained.
“For example, a 10% deposit on a typical first-time buyer home is now equivalent to 56% of total gross annual earnings, a record high. Similarly, a typical mortgage payment as a share of take-home pay is now above the long run average, despite mortgage rates remaining close to all-time lows.
“Reduced affordability is likely to exert a dampening impact on market activity and house price growth, especially since household finances are also coming under pressure from sharp increases in the cost of living.”
Mortgages and interest rates
It’s not just the cost of gathering a deposit which may set back the market, but the fact interest rates are likely to increase further as the year unfolds.
For anyone about to buy a property and looking for a mortgage, Mark Harris, chief executive of mortgage broker SPF Private Clients, thinks mortgage rates will remain relatively low for a little longer. He said: “Even as mortgage rates edge higher, they are still competitively priced, which should give buyers confidence to take the plunge, even in the face of higher living costs.
“With several lenders introducing longer-term fixed-rate mortgages, or tweaking existing products to make them more attractive, there is plenty to tempt borrowers looking for protection against further interest rate rises.”
