The UK housing market had its strongest start to the year for nearly two decades in January, industry data showed on Tuesday, as supply failed to keep up with “robust” demand.
According to the latest Nationwide House Price Index, 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. Analysts had been expecting growth closer to 10.9%.
Month-on-month, prices rose by 0.8% which, once seasonal effects were accounted for, was the sixth consecutive monthly increase. It was below December’s rise of 1.1% but ahead of forecasts; most analysts had been expecting a rise of around 0.6%.
The average price of a property now stands at £255,556, compared to £254,822 a month previously.
Nationwide attributed the growth to strong demand and limited supply.
Robert Gardner, Nationwide chief economist, said: “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.
“At the same time, the stock of homes on estate agents’ books has remained extremely low, which is contributing to the continued pace of house price growth.”
The housing market has boomed since the first lockdown as people reassessed their property needs and took advantage of the stamp duty holiday before it finished at the end of September 2021. However, the market is expected to cool this year, as record inflation, higher interest rates and a surge in living costs weigh heavily.
Gardner noted: “While the outlook remains uncertain, it is likely that the housing market will slow this year. House price growth has outstripped earnings growth by a wide margin since the pandemic struck and, as a result, housing affordability has become less favourable.
“Reduced affordability is likely to exert a dampening impact on market activity and house price growth, especially since household finances are also coming under pressure from sharp increases in the cost of living.”
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “House prices edged up to a seven-month high at the turn of the year, as buyers shrugged off heightened uncertainty relation to Omicron and surging CPI inflation.
“There are, however, early signs that house price growth now is slowing. Google Trends data, for instance, suggest that the number of people searching the phrase ‘homes for sale’ broadly is in line with its pre-Covid level, having exceed it buy as much as 60% in March 2021.
“All told, we think house price growth will fail to maintain its recent momentum, with month-to-month gains averaging just 0.2% in the first half of this year.”
