Strong growth in house prices continued at the start of 2022, with official data released on Wednesday showing a near-10% jump in prices in January, although market watchers were not expecting the surge to last.
According to the Office for National Statistics, UK average house prices increased 9.6% over the year to January, down from 10% in December.
The average UK house price reached £274,000 in January – £24,000 higher than the same time last year – with the average house price in England rising 9.4% to £292,000.
In Wales the average house cost 13.9% more at £206,000, while in Scotland it was up 10.8% to £183,000 and in Northern Ireland it was ahead 7.9% at £159,000.
The ONS said London was still the region with the lowest annual growth, however, at 2.2%.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said the outlook was less rosy than the data suggested, however, given the “dual hit” from higher mortgage rates and falling real incomes.
“The two-year overnight index swap rate has soared to 1.96%, from 1.32% at the start of February, and just 0.26% in August.
“Mortgage spreads already are tight by past standards, so the average quoted rate for a two-year fixed-rate mortgage, with a 75% loan-to-value ratio, looks set to increase to about 2.3% in June, from 1.76% in February.
“At the same time, real household disposable incomes look set to decline by about 2% this year – the most since records began in 1947 – following the deterioration in the outlook for CPI inflation in the wake of Russia’s invasion of Ukraine.”
Dickens said some households might use the cash they accumulated during the pandemic to part-finance a house purchase, but the low level of consumers’ confidence, with GfK’s headline measure falling to -26 in February from -19 in January, suggesting that many households would be cautious.
“Unsurprisingly, we are already starting to see some signs that demand is coming off the boil.
“The number of Google searches for the three most popular property websites was 6.7% above its pre-Covid norm in the week to 13 March, compared to 8.1% above in the first week of the month, and 17% above in the first week of February.
“In addition, the BSA Property Tracker shows that the proportion of households citing affordability as a reason not to buy a new home rose to 48% in the first quarter – its highest level since the third quarter of 2018 – from 39% in the fourth quarter.
“All told, then, we expect year-over-year growth in the official measure of house prices to slow to around 3.5% by the end of the year, from 10.0% in December 2021.”