According to Nationwide, house prices rose at the quickest annual rate for a January in 17 years, due to “robust” demand and insufficient supply.
According to the building society, prices increased by 11.2 percent year on year and by 0.8 percent between December and January.
Affordability is already a major concern, with property prices growing far faster than incomes across the region. According to Nationwide, a deposit currently represents a record proportion of a first-time buyer’s wage.
“A 10 percent deposit on a typical first-time buyer home is now equivalent to 56 percent of total gross annual earnings, a record high,” said Robert Gardner, chief economist at the building society.
“Similarly, 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.”
Last month, the average price of a home in the UK was £255,556, up from £254,822 in December, as demand remained “robust,” according to Mr Gardner.
“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, mortgage approvals for house purchase have remained slightly above pre-pandemic levels.”
“Indeed, the total number of property transactions in 2021 was the highest since 2007 and around 25 percent higher than in 2019, before the pandemic struck. ” says the report. Simultaneously, the number of properties on estate agents’ books has remained exceptionally low, adding to house price growth’s sustained robustness.” However, the Nationwide anticipates that as housing becomes less affordable, house price growth will decelerate this year.
The property market’s prospects “remains uncertain” according to Mr Gardner, although home price increase has “outstripped earnings growth by a wide margin since the pandemic struck” With loan rates projected to climb in the coming months, he noted, affordability might be further impacted.
In December, the Bank of England boosted its main interest rate to 0.25 percent, with more hikes likely this year. On Thursday, the Bank’s Monetary Policy Committee will issue its next rate announcement.
“This will further reduce housing affordability if it feeds through to higher mortgage rates,” Mr Gardner said, “although lenders have absorbed a significant portion of the rise in longer-term interest rates seen in recent months.”
Reduced affordability, according to Mr Gardner, will likely dampen market activity and house price growth this year, “especially since household finances are also coming under pressure from sharp increases in the cost of living” with inflation hitting 5.4 percent in December, the highest level since 1992, and set to rise even more in the coming months as energy prices rise.
