The year kicked off on a strong note in the UK housing market and the price of an average UK home continued to hit all-time highs. The Nationwide House Price Index rose by 11.2% YoY in January, a seven-month high (chart of the month), and 0.8% higher than prices in December[i]. According to Rightmove, the average asking price of a UK property in January was 7.6% higher than a year ago, the highest annual rate of growth recorded by Rightmove since May 2016[ii]. The price activity is a clear reflection of robust demand: according to Rightmove, the number of buyers enquiring about homes in January was 15% higher than the same time last year. According to Savills, the market strength looks set to last for the foreseeable future as strong demand continues to exceed supply[iii]. That said, the latest RICS construction survey reveals a more positive outlook for the construction industry this year despite the challenges of current labour shortages and soaring material costs, meaning supply constrains may start to ease[iv].
Chart of the month: Monthly UK house price, annual % change
Source: Nationwide House Price Index, Blend Network
Market Commentary
- Following an exceptionally robust year last year when the ‘race for space’ pushed up prices across the UK and three out of four quarters saw average house price growth above 10% YoY, UK house prices took no respite in January. The Nationwide House Price index showed the strongest start to the year in 17 years[v]. Robert Gardner, Chief Economist at Nationwide, believes that while the outlook remains uncertain, it is to be expected that the housing market will slow this year partly as reduced affordability is likely to dampen market activity and house price growth (see Figure 1).
- According to Rightmove[vi], ‘strong demand and continuing low numbers of available homes for sale set up the housing market frenzy to continue into the start of 2022.’ The portal reveals that home valuation requests in the first working week of this year was 44% up on the same period last year, and 48% up on the same period in 2020.
Property Market News
- Earlier last month, the Government finally took a firmer stance on the cladding scandal facing thousands of leaseholders in low to mid-rise properties across the UK. Under the new proposed legislation, announced by the secretary of state for Levelling Up, Housing and Communities Michael Gove, developers of properties affected by unsafe fire measures are expected to pay for replacement of the cladding, not leaseholders[vii].
- The construction materials shortage is easing, but according to the Construction Leadership Council (CLC), long lead times and further price increases are anticipated[viii]. In a recent joint statement, John Newcomb and Peter Caplehorn, co-chairs of the CLC’s Product Availability working group, warned that rising inflation and energy costs, and uncertainty around new Covid19 variants are factors impacting material shortages.
- Earlier this month, the Bank of England (BoE) rose interest rates for a second time in three months to 0.5%, with analysts expecting rates to hit 1% by the summer and 1.25% by the end of the year. The move will put a clear squeeze on household finances and affordability, but it will also likely impact the pipeline of housing supply.
Figure 1: Nationwide’s historical house affordability indicator
Source: Nationwide House Price Index, Blend Network
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[i] Source: Nationwide House Price Index, https://bit.ly/3HpxrFP
[ii] Source: Rightmove House Price Index, https://bit.ly/34eBzKf
[iii] Source: Government, https://bit.ly/3Hmly3n
[iv] Source: https://bit.ly/3IXmKug
[v] Source: Nationwide House Price Index, https://bit.ly/3HpxrFP
[vi] Source: Rightmove House Price Index, https://bit.ly/34eBzKf
[vii] Source: Savills’ UK Housing Market Update January 2022, https://bit.ly/3LlgoqX
[viii] Source: News story, https://bit.ly/34udlvP
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