The UK property market boom looks poised for a slowdown in 2022 as the cost of living and rising interest rates hit house prices and mortgages.
New data from mortgage lender Halifax shows house prices rose just 0.3% in January — their slowest rate of monthly growth since June 2021.
On an annual basis, the rate of growth remained steady at 9.7%, with prices at another record high of £276,759 ($374,680). This was up around £24,500 on the same time last year, and £37,500 higher than two years ago, before the coronavirus pandemic.
The North West remained the strongest performing region across England, with prices increasing 12% year-on-year, and the average house price standing at £213,200.
The easing of COVID restrictions and increased demand from overseas buyers is lifting demand for property in London. The capital saw house price inflation accelerate for the third month in a row in January, to 4.5% — this was double the rate recorded in December and the highest reading in over a year.
"Following the peak activity of 2021, transaction volumes are returning to more normal levels. Affordability remains at historically low levels as house price rises continue to outstrip earnings growth," said Russel Galley, managing director of Halifax.
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"Despite record levels of first-time buyers stepping onto the ladder last year, younger generations still face significant barriers to home ownership as deposit requirements remain challenging."
The average house price in Wales fell slightly this month to £205,253, according to Halifax. But it was "by far the strongest performing nation or region in the UK", with Wales's annual house price inflation at 13.9%.
In Scotland, the average property price also edged lower, to £192,69, with the annual rate of inflation slowing to 8.9%.
Average house prices were up 10.2% on last year in Northern Ireland, with an average property value of £170,982 in January.
Halifax expects the situation to "become more acute in the short-term" as households face greater pressure due to the rise in living costs and as interest rates "begin to feed through" mortgage rates.
"While the limited supply of new housing stock to the market will continue to provide some support to house prices, it remains likely that the rate of house price growth will slow considerably over the next year," Galley added.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: "The cost-of-living crisis puts the brakes on runaway house price rises. Prices were still going up in January, but far slower than for the previous three months, and the number of sales dropped back to the kinds of levels we saw before the pandemic.
"Back-to-back interest rate rises haven’t moved mortgage rates far off their record lows, and with four-in-five mortgage holders protected by fixed rate deals, most haven’t yet faced the impact of rate increases. However, it’s persuading buyers to think twice about how they can afford higher house prices at a time of rising rates."
Last week the Bank of England raised interest rates for the second time in two months as it sought to head off inflation running at a 30-year high. BoE figures show the number of mortgages approved to finance house purchases rose by 5% in December 2021, to 71,015. Year-on-year, the December figure was 30% below December 2020
Karen Noye, mortgage expert at Quilter, said while forecasts of a housing price reduction "have not yet fully materialised" it seems "inevitable" that there could be a slowdown in the coming year.
"With energy prices soaring, inflation running riot and interest rates likely to rise in the very near future people are going to start to feel less financially stable than they were before, and this will translate into fewer property purchases," Noye said.
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"House price growth continues to far outstrip wage growth and now with a cost-of-living crisis looming the run of ever-increasing property prices is simply unsustainable."
It comes after a separate report showed property sales in the UK rose to their highest level on record in January as strong buyer demand boosted the selling season at the start of year.
According to Rightmove (RMV.L), buyer demand jumped 16% compared to January last year, and 24% in comparison to January 2020. It rose 41% against 2019 levels.