Property market branded “a law unto itself” following extraordinary February growth

Economic logic and the UK property market rarely go hand in hand and this was once again the case in February. Despite the soaring cost of living and interest rate rises, the annual rate of house price growth rose to 12.6% last month, according to the latest Nationwide house price index — up from 11.2% in January. The price of a typical home is now a phenomenal 20% higher than February 2020. Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said:

“Annual house price growth accelerated to 12.6% in February, up from 11.2% in January and the strongest pace since June last year. Prices rose by 1.7% month-on-month, after taking account of seasonal effects, the seventh consecutive monthly increase. The price of a typical home rose above £260,000 for the first time in February, an increase of £29,162 over the past 12 months. This is the largest ever annual increase in cash terms since the start of our monthly index in 1991.”

Scott Taylor-Barr of Shropshire-based mortgage broker, Carl Summers Financial Services, hit the nail on the head when he said “the UK property market is a law unto itself. The fact that average prices are 20% higher than two years ago, at the start of a global pandemic, is borderline fantastical. Interest rate rises and the increase in the cost of living clearly haven't impacted the property market yet, with people still keen to get onto, or move up, the ladder.”

But Taylor-Barr suggested price growth is likely to moderate in the months ahead due to “lenders' affordability calculators becoming less generous and borrowing rates heading north”.

Ross Boyd, founder of the always-on mortgage comparison platform, Dashly.com, also struck a cautious tone despite the upbeat data: “The property market is absolutely flying but there is turbulence ahead. Many households are starting to feel the pinch and lenders are looking at affordability in ever greater detail, and this is likely to see the market slow as we progress through the year.”

Toby Fields, co-founder of Bristol-based Langley House Mortgages, notes that a significant contributor to the exceptional growth we’re seeing is the sheer lack of homes on the market: “The largest ever annual increase in cash terms in over 30 years is frankly mind-boggling and is almost certainly being caused by the radical imbalance between supply and demand. Though the cost of living and interest rates are rising, the one thing that isn’t is the number of houses for sale. Frighteningly low stock levels are supporting prices and keeping the market strong.”

His views were echoed by Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco: “The Herculean performance of the property market in February is being driven by still rampant demand and an unprecedented lack of homes for sale. Don't expect this pace of growth to continue, though, as there are countless headwinds ahead. Interest rates are set to rise further to contain spiralling inflation, tax hikes are getting ever closer and energy and grocery bills are skyrocketing. Moving forward, it's likely that people's borrowing power will wane as lenders take into account these extra costs and that will cause the market to cool down.”

In theory that’s true, but in practice, who’d bet against it? The UK property market has a history of defying economic gravity and delivering bricks and mortar curveballs.