UK house prices rise at fastest pace in 18 years

UK house prices grew more than expected in March and at their fastest pace since 2004, supported by a strong labour market and low mortgage rates, but experts warn of a slowdown in the months ahead as inflation rises.

Annual growth in house prices grew at their fastest rate in 18 years this month, hitting 14.3 per cent, up from 12.6 per cent in February, according to mortgage provider Nationwide.

The rate of growth surpassed the 13.5 per cent forecast by economists polled by Reuters.

“The acceleration in house price growth will add to concerns that the pandemic housing market boom is getting out of hand,” said Andrew Wishart, senior property economist at Capital Economics.

Robert Gardner, Nationwide’s chief economist, said the continued “buoyancy” of housing demand could be in part explained by strong labour market conditions.

The property market also benefited from high household savings accumulated during the lockdown and low mortgage rates, said Mark Harris, chief executive of mortgage broker SPF Private Clients.

The price of a typical UK home climbed to a record high of £265,312, reflecting an increase of £33,000 in the past year. The average cost of a house was 21 per cent higher than before the pandemic struck in early 2020.

Nationwide data show that earnings have grown less than house prices during the coronavirus crisis, pushing the house price-to-earnings ratio to an all-time high in the first three months of the year.

“Affordability remains a big concern, especially for first-time buyers worried about being priced out of the market,” said Iain McKenzie, chief executive of The Guild of Property Professionals.

Line chart of house price to earnings ratio showing UK houses have become less affordable

This is particularly true for detached properties, which have benefited from strong demand for more space following increased working from home. Their prices have increased by nearly £68,000, or 22.6 per cent, since the onset of the pandemic.

Over the same period, the price of flats increased by 14.1 per cent, or around £24,000 in cash terms. This means that it is becoming more difficult for existing homeowners to trade up, said Gardner.

In the three months to March, house prices accelerated in all regions of the UK except Wales and Northern Ireland.

The London market was again the weakest performer in the UK as housing demand was stronger in less built-up places, despite an uptick in annual price growth in the first quarter to 7.4 per cent, from 4.2 per cent in the fourth quarter of 2021.

The pace of growth in London fell short of the double-digit house price growth rates of other regions, with the strongest rise recorded in Wales and the South West of England where prices increased by more than 14 per cent.

However, experts have warned that rising house prices could cool in the coming months as surging inflation hits real income.

Tom Bill, head of UK residential research at property consultancy Knight Frank, said “the cost of living squeeze and rising mortgage rates will undoubtedly take their toll on demand later this year”.

Jason Tebb, chief executive of property search website, agreed that growing living costs would add pressure. “The combination of rising cost of living, interest rates and house prices mean buyers who delayed and missed out on a purchase last year may now be finding that it’s increasingly difficult to afford to move,” he said.

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