House prices grew at the strongest pace since 2004 in March, up 14.3% on the year, according to the latest Nationwide House Price Index.
On a monthly basis prices were up 1.1% on February.
The index also found that average house prices now exceed £260,000 for the first time with the price of a typical home now 20% higher than in February 2020.
Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist, said: “Housing market activity has remained robust in recent months, with mortgage approvals continuing to run above pre-pandemic levels at the start of the year.
“A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices.
“The continued buoyancy of the housing market is a little surprising, given the mounting pressure on household budgets from rising inflation, which reached a 30-year high of 5.5% in January, and since borrowing costs have started to move up from all-time lows in recent months.
“The economic outlook is particularly uncertain at present. Nevertheless, it is likely that the housing market will slow in the quarters ahead.
“The squeeze on household incomes is set to intensify, with inflation expected to rise above 7% in the coming months.
“Indeed, there is scope for inflation to rise even further as events in Ukraine threaten to send global energy prices even higher.
“Assuming that labour market conditions remain strong, the Bank of England is also likely to raise interest rates, which will exert a further drag on the market if this feeds through to mortgage rates.
“Housing affordability has already become more stretched, in part because house price growth has been outstripping earnings growth by a wide margin since the pandemic struck. The price of a typical home is now equivalent to 6.7 times average earnings, up from 5.8 in 2019.”
Reaction
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“Nationwide reports a further uplift in property prices as supply is still not enough to meet demand. Buyers’ purchasing power is strong as they take advantage of savings accrued during lockdown and low mortgage rates to afford their next home.
“Brokers are being kept busy as borrowers increasingly worry about rising mortgage rates and are keen to lock into a fixed rate before they become more expensive.
“With a recent paper from the Bank of England showing that brokers reduce the average mortgage interest costs by 21%, sensible borrowers are taking advice to ensure that in this era of rising living expenses and interest rates, they don’t pay more than they need to for their mortgage.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“Although the Nationwide house price index has generally been widely respected for its accuracy and reliability, its latest report has a whiff of yesterday’s news.
“These figures are still showing prices rising strongly based on mortgages granted for sales agreed several months ago so don’t reflect what’s been happening at the sharp end since.
“Rising interest rates, inflation and wider concerns about the impact of the terrible events in Ukraine in particular have put a dampener on transactions and prices which continue to be sustained by stock shortages.
“We definitely have the feel of entering a more ’normal’ market phase, similar to pre-Covid times with supply and demand increasingly in balance.”
Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco:
“The exceptional rate of annual house price growth in March should create more unease than it does celebration. Yes, the jobs market is strong but the once-in-a-generation cost of living crisis and rising interest rates will almost certainly start to calm activity levels in the months ahead.
“However, average property values are unlikely to fall materially as mortgage rates are still very competitive and supply levels are obscenely low. The supply and demand imbalance will support average values moving forward.
“A key driver of activity at present is people’s desire to get out of the rental market, where prices are often ridiculously high. Though it remains at the back of the pack in terms of regional price growth, London is starting to gain a lot more momentum.”
Ross Boyd, founder of the always-on mortgage comparison platform, Dashly.com:
“The momentum in the property market isn’t surprising, it’s outright absurd. Logic suggests the property market should be cooling, not hitting further record highs but then the property market has a habit of defying logic.
“For prices to be 21% higher than before the pandemic struck is frankly astonishing. The race for space triggered by the pandemic has made people more ‘attached to detached’ than ever, so it’s no surprise detached homes are seeing the strongest price growth.
“The major challenges facing the market right now are an abject lack of stock, interest rate rises and the extraordinary rise in the cost of living. Many households are really starting to feel the squeeze and lenders are looking at affordability in ever more forensic detail. This is likely to see the market slow as we progress through the year.”
Imran Hussain, director at Nottingham-based broker, Harmony Financial Services:
“The property market in March was absolutely belting due to the lack of stock and crazed, near delirious would-be buyers still offering over the odds to secure a property.
“This has kept house prices strong to date but surveyors are now downvaluing properties faster than Usain Bolt.
“Currently, demand is still outstripping supply but the rising cost of living will certainly start to impact the demand for, and supply of, loans, which could calm property price growth.”
Rob Peters, director of Altrincham-based Simple Fast Mortgage:
“The property market in March 2022 did exactly that, and kept marching on, with property hunters strangely undeterred by spiralling inflation and increased interest rates.
“Key to this, of course, is the lack of availability of housing stock, and as long as supply is low, we will have to see more elevated levels of economic misery before demand, and the spirit of the UK property market, are finally quashed.”
Graham Cox, founder of the Bristol-based Self-Employed Mortgage Hub:
“We saw robust demand in March. People who want to buy a property are trying to get a fixed rate mortgage before rates increase further. But affordability remains a big issue, not just with all the various cost of living rises but high property prices themselves.
“There’s such a shortage of housing stock that people who can afford to are paying top dollar, often over the asking price. This housing market madness can’t go on much longer. I think prices will fall in the second half of the year, as rates increase and the harsh economic reality kicks in.”
Scott Taylor-Barr of Shropshire-based broker, Carl Summers Financial Services:
“The major concern in the market at present is affordability and whether that will impact house prices later in the year.
“With the increases in National Insurance and energy prices, plus increases in food costs and other essentials all feeding into the official data sets that most lenders use in their affordability models, we are expecting a reduction in the size of mortgage people will be able to secure for a given income over the coming months.
“While no one is expecting this to be a stake through the heart of the housing market, many are forecasting a slowing of the rampaging growth that we have almost become used to.”
Dominik Lipnicki, director of Your Mortgage Decisions:
“While supply remains low, the housing market has remained buoyant throughout March and will continue to do so in 2022. That said, we are unlikely to see double digit increases as we have experienced in 2021.
“There are, of course, growing affordability challenges with inflation, particularly when it comes to ever-spiralling energy and fuel costs. Lenders are now factoring these rises, as well as the upcoming National Insurance hike, into their calculations and that will temper what people are able to borrow. The result is likely to be a cooling in the rate of price growth. We have also seen the Bank of England once again raising its base rate to the pre-pandemic level of 0.75%.
“In reality, the recent rises in the base rate have meant disproportionately larger costs in mortgage borrowing. For example, one mortgage that was fixed at 0.99% a few months ago is now available at more than double that and many predict further base rate rises ahead.”
Rob Gill, founder of London-based Altura Mortgage Finance:
“We are seeing more purchase transactions fall through for reasons that indicate an increasing nervousness among prospective buyers. A buyer recently pulled out of a seven-figure purchase for a non-specific reason of “something’s come up in the legals”. People have been pulling out of transactions at late stages because they’ve simply changed their minds.
“Down valuations are also an increasing problem and, unlike last year, buyers are not prepared to shrug them off and complete anyway. While such incidents are a trickle rather than a flood at the moment, they indicate a market coming off the peaks of sky-high confidence as concerns over the cost of living, war in Europe and record-high property prices start to bite.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services:
“As interest rates start their inexorable march upwards, we’ll likely see a cooling of the property market.
“However, anyone sitting on their hands thinking they’ll pick up a bargain will be disappointed. Prices will be kept high because of the shortage of homes.
“We don’t have enough stock as it is, we’re not building homes fast enough, and now we’re not approving new plans fast enough for additional homes to be built, further baking in a shortage that will keep prices high.
“Even with the cost of living crisis about to hit like a freight train, mortgage lenders seem happy to keep calm and carry on, for now at least. But there are storm clouds ahead and lenders could soon start battening down the hatches.”
Tomer Aboody, director of property lender MT Finance:
“Space, space and more space has been the real driver of demand in the housing market over the past 12 to 18 months. Buyers have been adapting to the trend of working from home at lease some of the time, and need designated space to do so.
“With the lack of supply of good-sized homes, prices have surged. There are many more buyers than properties for sale, and those buyers are armed with savings due to the lack of spending during the pandemic. On top of this, lower interest rates mean they can afford bigger mortgages.
“Regional trends further demonstrate the demand for fresh air and space, with countryside and coastal regions seeing the highest growth in demand and prices.”
Alex Lyle, director of Richmond estate agency Antony Roberts:
“Year-to-date the market has been stubbornly short on supply but more stock is becoming available, particularly in the mid- to upper-family house market. This time of year plays its part in that, as well as some sellers bringing forward their plans in the hope of benefiting from what we could look back on as a real window of opportunity.
“Prices continue to rise in the family house market in particular, with large numbers of viewings, multiple offers and sealed bid scenarios all common. Ambitious or inflated pricing of flats means they can easily get stuck.
“This level of demand is likely to remain over coming months but more stock is required across all price ranges for that demand to remain committed. The rising cost of living, increases in interest rates and conflict abroad may in time dent confidence and impact on sales volumes.”
Nicky Stevenson, managing director at national estate agent group Fine & Country:
“The housing market seems somehow ring-fenced from the uncertainties which continue to grow in the broader economy.
“We’re seeing records being broken month after month, and people continue to ask how long can this go on?
“While the squeeze on incomes has been amplified by conflict abroad, for the time being home buyers are managing to absorb these pressures.
“The demand for homes continues to outstrip supply right across the country — and just look at growth in London starting to surge again.
“This data is the firmest evidence yet of a drift back to the capital, and people will be wondering how long it will take before we see double digit growth there.”
Iain McKenzie, CEO of The Guild of Property Professionals:
“With every month that passes a new house price record tumbles, and it’s hard to know how long this long incredible streak can continue.
“These are the highest growth figures since 2004, and if this momentum doesn’t slow soon, economists will have to start dusting off figures from the 1990s.
“The increase in the cost of living will likely have a slowing effect in the coming months, as inflation and price rises impact on budgets.
“It will take some time for a decline in consumer confidence to impact on house prices, as the demand for properties is still high and competition for each home is fierce.
“With the average property now costing over £265,000, affordability remains a big concern, especially for first-time buyers worried about being priced out of the market.”
Lucy Pendleton, property expert at independent estate agents James Pendleton:
“Stop checking those electricity and gas meters for a moment and marvel at the amazing energy still coursing through this housing market.
“Strong buyer demand, the ongoing dearth of supply and the savings some buyers managed to accumulate during the pandemic are keeping the party going, particularly when it comes to higher-end detached properties.
“The buoyant jobs market and record employment figures are helping sustain confidence and the impact of the latest interest rate rise has yet to bite. In fact it could even lead to a push to secure new mortgages on fixed deals before prices move out of reach.
“Yet sooner or later a fuse is likely to blow. Surging consumer inflation could reach double digits in the coming months, while those huge energy bills landing on doormats will bring the cost of living crisis into sharp focus.”
Sundeep Patel, director of sales at specialist lender, Together:
“Average house prices increased by 14.3% in February, fuelled by supply shortages and excessive demand.
“With the economy buckling, households are shouldering a triple whammy of higher bills, food prices and energy costs, making it increasingly difficult for first-time buyers to save enough money to get their foot onto the property ladder. In a bid to subdue rising costs, the Bank of England has raised interest rates consecutively for the third time, with more increases predicted on the horizon. This is expected to curb property spending as consumers ride out the storm.
“It’s likely that house price growth will slow, as prices peak and people’s priorities shift away from moving house. Homeowners may instead focus their efforts in making their existing homes greener to drive down energy costs.. This will be helped by the government’s EPC grants which are available to homeowners from tomorrow, along with the recent cut on VAT for homeowners installing solar panels, heat pumps or insulation over the next five years.”
