MortgagesFeb 1 2022

House prices get off to 'strongest start in 17 years'

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House prices get off to 'strongest start in 17 years'
Photographer: Anthony Devlin/Bloomberg

Annual house price growth reached 11.2 per cent in January, up from 10.4 per cent in December, according to Nationwide’s latest house price index.

The 0.8 percentage point rise also marked the strongest pace of growth since June last year, a month buoyed by the end of the stamp duty holiday.

The rise comes in spite of experts’ concerns last month that rising inflation could revert the market back to a decline.

“Annual house price growth accelerated to 11.2 per cent in January, the strongest pace since June last year, and the strongest start to the year for 17 years. Prices rose by 0.8 per cent month-on-month, after taking account of seasonal effects, the sixth consecutive monthly increase," said Nationwide's chief economist, Robert Gardner.

"Although 2022 might see more sensible levels of property activity, it's going to take an interest rate tsunami to put house buyers off,” said Rob Peters, director of Altrincham-based Simple Fast Mortgage.

“Ultimately, people need houses, and as there aren't enough houses, demand will remain high, and property prices will continue to rise.”

Last year was the strongest year for house price growth since 2006. It was also the best year for property transactions since 2007, despite a nine-year low in October.

Peters isn’t the only broker pointing to healthy buyer demand. Manchester-based broker Jamie Thompson said he was “seeing as many first-time buyers as there's ever been” around Manchester.

Whilst Rhys Schofield, managing director at Peak Mortgages and Protection, said January was “by far and away” the firm’s “busiest month ever”, with demand for property and mortgages “through the roof”.

But Gardner alongside other experts, anticipates a cooling off in house price growth over the coming months.

There could be a rude awakening in 2022 for those who believe house prices can only ever go up.Graham Cox

Gardner said reduced affordability as a result of sky-high prices was 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,” he added.

Consumer price inflation reached 5.4 per cent in December, its fastest pace since 1992.

This is more than double the Bank of England’s 2 per cent target and is set to rise further as the energy price cap is increased in April. 

Turning buyer appetite

For some brokers, January showed signs of a turning buyer appetite. Graham Cox, founder of the Bristol-based Self-Employed Mortgage Hub, said mortgage demand picked up a little in the second half of January.

“But overall,” he continued, “we're noticing borrowers are turning cautious, fearful of the economic outlook.”

Whilst he acknowledged prices would remain high as long as the housing supply crisis continues, he said all the factors on the demand side “are going in the wrong direction. 

“National Insurance, energy bills, the cost of food, fuel and mortgages are all going up,” said Cox. “There could be a rude awakening in 2022 for those who believe house prices can only ever go up."

Scott Taylor-Barr, a Shropshire-based broker at Carl Summers Financial Services, has also seen a change in consumer sentiment.

"Right now a lot of the potential buyers I speak to are deeply conflicted,” he said.

“They want to buy a home but they are reading a lot about rising interest rates, inflation at record highs, tax increases and soaring energy costs, and on top of that a potential Russian invasion of Ukraine.

“It's not surprising that people are approaching a big ticket purchase like a house with a little less of a gung-ho attitude in the current fraught climate." 

Today (February 1), the Bank of England also released its Money and Credit report for December. In that month, mortgage approvals for house purchases rose to 71,000, which was above the 12-month average up to February 2020 of 66,700.

This has prompted some to feel optimistic about 2022. John Phillips, national operations director at Just Mortgages, said approvals in December confirmed interest in purchasing property was “here to stay”.

“Now we have a full picture of last year, we can see the shape of the market,” Phillips explained.

“It was a year of turbulence, with spikes in activity, but the main takeaway is that 2021 was the year of the broker. With stamp duty deadlines and criteria changes aplenty, brokers did an exceptional job supporting clients to find the right mortgage.

“This year, brokers’ advice will be just as crucial. With interest rates rising, and another base rate rise in the near future, clients will need to be working with brokers more than ever.”

ruby.hinchliffe@ft.com