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‘Affordability metrics’ should lead to house price rise slowdown

House price trends seem to have a life of their own, divorced from economic concerns. Such is picture painted by results of the latest Halifax survey.

The mortgage lender has reported prices rose by 1.4 per cent between February and March – the steepest rate of monthly increase for six months.

The current annual rate of increase was put at 11 per cent, and the average property price at £282,753.

‘Two years on from the first lockdown, house prices have now risen by £43,577’, said Halifax.

But all may not be as rosy as it seems, said managing director Russell Galley. ‘Cost of living pressure is likely to slow the rate of house price growth this year’.

The story behind such strong house price inflation remains unchanged: limited supply and strong demand, despite the prospect of increasing pressure on households finances, said Galley. ‘Although there is some recent evidence of more homes coming onto the market, the fundamental issue remains that too many buyers are chasing too few properties.

‘However, in the long-term we know the performance of the housing market remains inextricably linked to the health of the wider economy. There is no doubt that households face a significant squeeze on real earnings, and the difficulty for policymakers in needing to support the economy yet contain inflation is now even more acute because of the impact of the war in Ukraine. ‘Buyers are therefore dealing with the prospect of higher interest rates and a higher cost of living. With affordability metrics already extremely stretched, these factors should lead to a slowdown in house price inflation over the next year’.

The effects of the Coronavirus on housing choice is plain to see, suggests Halifax. Overall, the average house price has risen by 18.2 per cent over the two years since the Coronavirus lockdown began. Prices for flats have increased by 10.6 per cent, detached property has leapt up by 21.3 per cent.

By region, the South West of England has overtaken Wales as the UK’s strongest performer in terms of annual price house inflation, now up to 14.6 per cent, its highest rate of annual increase since September 2004.

Nationwide figures published a few days before those of Halifax, also showed continued strong house price growth.

‘March saw a further acceleration in annual house price growth to 14.3 per cent, the strongest pace of increase since November 2004’, said Nationwide chief economist Robert Gardner. ‘Prices rose by 1.1 per cent month-on-month, after taking account of seasonal effects, the eighth consecutive monthly increase.

‘The housing market has retained a surprising amount of momentum given the mounting pressure on household budgets and the steady rise in borrowing costs. The number of mortgages approved for house purchase remained high in February at around 71,000, nearly 10 per cent above pre-pandemic levels. A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices.

‘The continued buoyancy of housing demand may in part be explained by strong labour market conditions. The unemployment rate has continued to trend down in recent months (to 3.9 per cent in the three months to January) from already low levels. Wage growth has accelerated, though it is running below inflation.

‘The significant savings accrued during lockdowns is also likely to have helped prospective homebuyers raise a deposit. We estimate that households accrued an extra £190bn of deposits over and above the pre-pandemic trend since early 2020, due to the impact of Covid on spending patterns. This is equivalent to around £6,500 per household, although it is important to note that these savings were not evenly spread, with older, wealthier households accruing more of the increase.

‘Nevertheless, we still think that the housing market is likely to slow in the quarters ahead. The squeeze on household incomes is set to intensify, with inflation expected to rise further, perhaps reaching double digits in the quarters ahead if global energy prices remain high’.