UK house prices make strongest start to the year since 2005

UK house prices made their strongest start to the year since 2005 as the pandemic housing market rollercoaster continued in the first month of 2022, with mortgage lending also on the up and lenders rushing to offer 10-year fixed-rate deals just as the Bank of England starts to raise rates. 

According to building society Nationwide, annual house price growth increased to 11.2% in January, from 10.4% in December, with the average price up to £255,556 from £254,822.

The monthly change was 0.8% compared to 1.1% in December.

“Housing demand has remained robust,” said Robert Gardner, Nationwide’s chief economist, noting also that mortgage approvals have continued to run slightly above pre-pandemic levels.

Indeed, there was data from the Bank of England this morning too, which confirmed that approvals for house purchase – an indicator of future borrowing – rose to 71,000 in December, above the 12-month average up to February 2020 of 66,700. Approvals for remortgaging with a different lender rose slightly to 44,900 in December.

READ: BoE interest rate hike – what it means for investors and markets

With the recent rise in UK interest rates and another move higher expected this week, combined with high inflation, housing affordability is being further eroded, which could hit house price growth.

There are also early signs that house price growth is now slowing, said economist Sam Tombs at Pantheon Macroeconomics.

He pointed to Google Trends data that suggest that the number of people searching the phrase “homes for sale” is back towards pre-Covid levels, having exceeded it by as much as 60% in March 2021, while Rightmove data showed unasked-for price increases have slowed. 

“Looking ahead, we think that house price growth will slow this year, as mortgage rates rise and real incomes are squeezed,” Tombs said, with mortgage spreads already very tight by past standards.

“Admittedly, house prices could be boosted if households are willing to deploy the excess savings they accumulated during the pandemic — now equal to around 8% of annual GDP — to finance a home purchase, especially as pandemic-related uncertainty eases. But house price growth has struggled during periods of high inflation, due to the resulting hit to real incomes.”

Nationwide’s Gardner noted that a 10% deposit on a typical first-time buyer home is now equivalent to 56% of total gross annual earnings, a record high, while 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.

Although both property and mortgage markets are facing headwinds in the form of inflation and rate rises, Iain Swatton, head of intermediaries at the mortgage switching platform Dashly, said people are “still out to move into different types of home often further away from…