UK house prices rise at fastest rate in 17 years

Britain's house prices grew at their fastest annual rate since 2004 this month as the red-hot property market defies the wider cost-of-living crisis gripping the nation.

Prices rose 14.3% from the year before, taking the average value to a record £265,312 ($348,567), Nationwide reported on Thursday. Prices surged 1.1% in March alone, beating analysts' expectations.

Property prices boomed across all regions in the UK, with average prices jumping by £33,000.

The building society said that the cost of a home has risen for eight consecutive months, and now stands 21% higher than before the coronavirus pandemic.

While soaring inflation, interest rate hikes and a jump in energy bills are set to put the squeeze on household budgets, the housing demand surge shows no signs of slowing down.

"The housing market has retained a surprising amount of momentum given the mounting pressure on household budgets and the steady rise in borrowing costs," said Robert Gardner, Nationwide’s chief economist.

Nationwide said successive COVID lockdowns allowed homebuyers to save deposits, while the tight labour market also contributed to the market’s resilience.

Economists at Nationwide estimated that households accrued £190bn in extra deposits more than pre-pandemic levels, although this was concentrated among older, wealthier households.

Despite this, Gardner warned that he expects the market to slow in the coming months.

"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," he said.

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Karen Noye, mortgage expert at Quilter, said: "How the housing market truly reacts to the current circumstances will not be seen for a few more months.

"However, it is unlikely that house prices will be able to continue rising at the same rate we have seen over the past couple of years – particularly against the backdrop of an economy already trying to recover from the impact of the pandemic.

“If we do begin to see a slowdown, house prices would likely experience a gradual fall as opposed to a sudden drop. There is simply too much demand and too little stock at present, so house prices are likely to remain high for some time yet."

Detached properties have increased nearly £68,000 in price since the pandemic began, a 22% rise, as working from home fuelled a "race for space", while average flat prices have increased by £24,000, or 14%.

As the push for more space continued, where flat owners sought to transition to bigger homes, a record high gap opened between the price of each, making it harder for people to trade up. The gap doubled from around £12,000 to over £25,000.

"Competition is rift in this red-hot property market, and although life is starting to feel as close to normal, people are still continuing to re-consider their priorities and where they want to live," said, Myron Jobson, senior personal finance analyst at Interactive Investor.

Still, if the Bank of England adds to its three-straight rate rises, and this feeds through to mortgage rates, this could drag on the market as a whole, Nationwide said.

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