Annual House Price Growth Hits 17-Year High

May 14, 2022 by Craig Upton

Record cost-of-living increases continue to have little to no impact on the UK’s collective appetite to get on the property ladder, as demand continues to outpace supply in all areas of the country. According to Nationwide, insatiable demand has propelled annual house price growth to its fastest pace in more than 17 years – an astonishing 14.3% year-on-year growth rate in February.

This is the fastest annual growth the market has recorded since November 2004, even as the UK faces unprecedented inflation and an escalating cost-of-living crisis.

The figures from Nationwide indicate that the average asking price for a UK home increased by around £33,000 over the past year alone. It now costs £265,312 to buy a home in the UK, making the prospect of home ownership increasingly less plausible for an entire generation of would-be homebuyers.

Nationwide commented that the sector had demonstrated “a surprising amount of momentum given the mounting pressure on household budgets and the steady rise in borrowing costs”.

House Prices Up 20% in Two Years

Three consecutive interest rate hikes and record-high energy costs are doing little to dampen house price growth acceleration across the UK. Average house prices are now more than 20% higher than they were at the beginning of 2020, before the pandemic plunged the country into lockdown.

Once again, London recorded the lowest average house price growth at just 7%, though remains home to the UK’s highest average prices by a considerable margin.

“A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices,” said Nationwide’s chief economist, Robert Gardner.

Demand for homes is being sustained by the current strength of the UK job market, along with the extent to which many first-time buyers used lockdown to save towards deposits on their first homes.

An Inevitable Slowdown to Follow?

For the most part, analysts have written off a prospect of a housing bubble entirely. However, market-watchers believe that a gradual slowdown in average house price is inevitable, and will creep into the equation towards the end of the year.

The Office for Budget Responsibility (OBR), for example, predicted that house prices would fall in 2022. As living standards continue to plummet in the face of unprecedented living costs, many would-be buyers may be forced to rethink or delay their property purchases while struggling to make ends meet.

Speaking on behalf of Pantheon Macroeconomics, senior UK economist, Gabriella Dickens, said that while March had brought little other than record-breaking performance for the housing sector, it would also most likely represent the “peak for house price growth” this year.

“For starters, mortgage rates look set to rise further in the coming months,” she said.

“In addition, we expect housing demand to be hit by a sharp drop in households’ real disposable incomes.”