Yahoo Finance UK housing market makes strongest start since 2005
The housing market has had its strongest start to the year since 2005 with prices growing over 11%, according to mortgage lender Nationwide.
Annual house price growth rose to 11.2% in January, compared to 10.4% in December. The above-consensus rise was the highest since June 2021, and the strongest start to the year for 17 years, the UK’s biggest house index revealed.
The average house price now stands at £255,556, up from £254,822 in December.
The monthly change was 0.8% compared to 1.1% in December.
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Nationwide said demand for housing had remained robust at the start of the year, even after the expiry of temporary tax breaks on property purchases during the pandemic.
“Housing demand has remained robust. 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,” Robert Gardner, Nationwide’s chief economist, said.
“Indeed, 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.”
Nationwide still expects price rises to cool as the Bank of England continues to raise rates.
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.
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The central bank is expected to announce its first back-to-back rate rise since 2004 this week and interest rates could reach as high as 1% by summer.
“This will further reduce housing affordability if it feeds through to higher mortgage rates, although to date a significant proportion of the rise in longer term interest rates seen in recent months has been absorbed by lenders,” Gardner said.
Consumer price inflation hit an almost 30-year high of 5.4% in December and looks set to peak at around 6% in April, according to the Bank of England.
“The gravity-defying house price growth in January is indicative of a remarkably robust property market which has powered its way through the end of the stamp duty holiday,” Myron Jobson, personal finance campaigner at Interactive Investor, said.
“There has been little reprieve for prospective first-time buyers. Surging inflation, which continues to outpace wage growth, the spectre of higher interest rates to combat it and the cost-of-living squeeze mean that the mountain wannabe homeowners have to climb to get onto the property ladder is getting steeper.
“For those a paying a huge chunk of their income on rent while struggling to save for a deposit without the help of the Bank of Mum and Dad, the outlook is bleak.”
