Housing market gets off to a strong start

Prices increased by 1.4 per cent, bringing the annual growth rate to 4.4 per cent, confirming the strengthening trend we have seen since October, says Nationwide.

“Following neutral price movements between April and September when the house price index was largely static, recent months have seen much stronger increases. In fact, three quarters of the 4.4 per cent increase in house prices over the last year happened in the last four months,” comments Fionnuala Earley, Nationwide’s Group Economist.

“We think that at least part of the pick up in the market since October reflects a release of some pent-up demand following the cut in interest rates in August and the increased confidence on the part of buyers and sellers as they became more comfortable that the market was heading for a soft landing.

“The continued pick-up in mortgage approvals suggests that the market will strengthen further over the next few months,” continues Earley.

Earley believes that the strong pick-up experienced over the last four months is unlikely to persist. She says that the UK economy is still likely to see below-trend growth and further rises in unemployment are possible.

“Affordability remains stretched and it is unlikely that the market could absorb another strong rally of house price inflation. In addition, there are already indications that consumers’ appetite for further unsecured debt may be diminishing and that the amount of extra borrowing against property has slowed,” says Earley.

“Growing uncertainty over pensions has made saving more important. While this could generate renewed demand for housing as a form of pension saving in the longer term, consumers may focus on more traditional forms of savings and debt repayment in the shorter term, especially as the stock market recovers.”