House Prices Hit Record but Growth Is Slowing

House prices reached a new record high in January, but new figures from Halifax also revealed that the pace of growth is slowing.

The average price of a home rose by 9.7 per cent compared with a year earlier, gaining £24,500 to £276,759. However, monthly growth rose by 0.3 per cent, down from 1.1 per cent in December and the smallest monthly rate of increase since June 2021.

Russell Galley, managing director at the high street mortgage lender, warned that he expected the housing market to cool “considerably” this year as Britons were confronted by a cost-of-living squeeze.

The Bank of England raised interest rates to 0.5 per cent last week to curb inflation that it expects to rise above 7 per cent in April. It forecast that rising energy costs and goods prices would lead to a 2 per cent drop in people’s net income after inflation this year — the biggest hit to real incomes since comparable records began in 1990.

About 22 million households will have to pay 54 per cent more for their electricity and gas supplies from April 1, when the energy price cap rises to around £2,000. The Bank also predicted that growth in Britain’s GDP would slow. Galley said: “Affordability remains at historically low levels as house price rises continue to outstrip earnings growth. Despite record [numbers] of first-time buyers last year, younger generations still face significant barriers to home ownership.”

Martin Beck, chief economic adviser to the EY Item Club, the forecasting body, said that while house price growth would cool this year, he did not expect prices to fall. “Unplanned savings built up during the pandemic will go some way to offsetting the income squeeze. And with around 80 per cent of UK mortgage debt at fixed rates, most mortgage-holders are well insulated from short-term increases,” he said. He added that more stringent affordability criteria and mortgage regulation introduced during the 2010s meant that recent buyers should be better placed to cope with higher mortgage rates than in the past.

Wales was the strongest part of the UK for annual house price growth, at 13.9 per cent. Prices rose by 10.2 per cent in Northern Ireland and by 8.9 per cent in Scotland. In England, the northwest was the best-performing region, with prices up by an average of 12 per cent year-on-year. London remains the laggard, although annual house price inflation rose for a third month in a row to 4.5 per cent — double the rate in December and its strongest performance in more than a year.

Mortgage approvals rose by 5 per cent in December compared with the previous month, according to Bank of England data. About 71,000 mortgages were approved at the end of last year, 30 per cent lower than December 2020, when the stamp duty holiday was in force. Last week Nationwide said that house prices had made the strongest start to the year in 17 years, with annual growth of 11.2 per cent in January lifting the average price to a high of £255,556.

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House prices hit record but growth is slowing