House price growth hits 17-year high

House prices have risen at their fastest year-on-year rate for more than 17 years, according to figures released today.

The Nationwide monthly house price index shows the average house price in the UK is now £265,312. This is 14.3% up on the same period last year, the highest annual rise since November 2004.

Price are also 1.1% up on the previous month. Prices have now risen for eight consecutive months, although February’s figure is slightly down on the 1.7% monthly increase in January.

The figures come a day after online estate agent Zoopla reported the first signs of demand cooling in its monthly housing market tracker, and said it expected price rises to start reducing to more sustainable levels.

Robert Gardner, chief economist at Nationwide, said: “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% above pre-pandemic levels. A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices.”

Nationwide estimates households have accrued an extra £190bn in deposits since early 2020 as they saved money during the lockdowns, and this could be a factor fuelling demand.

However, Gardner said Nationwide is expecting the market to slow later in the year.

He said: “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. Moreover, assuming that labour market conditions remain strong, the Bank of England is likely to raise interest rates further, which will also exert a drag on the market if this feeds through to mortgage rates.”

The findings however follow data from Zoopla earlier this week suggesting that market growth has already started to slowdown. The business said annual house price inflation had dropped to 8.1% in the year to February, down from 8.4% in January.

Responding to the Nationwide figures, Tom Bill, head of UK residential research at Knight Frank, said if people are thinking of selling they should do it now rather than later.

Bill said: “Despite the exceptionally strong growth seen over the last year, a housing market slowdown is in the post. The cost-of-living squeeze and rising mortgage rates will undoubtedly take their toll on demand later this year.

“As we move beyond Covid and supply builds, this will also mean that house price growth becomes less eyebrow-raising. A strong labour market, high levels of household wealth accumulated during the pandemic and a slow trajectory for rate rises mean that prices will calm down without going into reverse.”