Plot twist: house prices defy the gloom with record high and biggest ever annual rise

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on Nationwide’s House Price Index for February, showing house prices defy the gloom with record high and biggest ever annual rise.

Key points from publication:

House prices rose 1.7% between January and February, according to Nationwide.
They’re up 12.6% in a year – or £29,162– to £260,230. In cash terms, it’s the biggest rise since the index started in 1991.
It’s the first time this index has been over £260,0000.
The price of the average home is now up 20% since the onset of the pandemic.

Sarah Coles says:

“The housing market produced an unexpected plot twist in February, hitting record high prices amongst an unspeakably gloomy backdrop. Buyers defied the biggest squeeze on incomes in a generation, rising interest rates, increasingly expensive houses and a drop in confidence, to snap up their dream property. But this trend is highly unlikely to last.

“The rise reflects the increase in mortgage approvals in January announced by the Bank of England yesterday, which is feeding through into more borrowing in February. It means buyers continued to throng to the market, and were willing to pay ever-higher prices for the dwindling number of properties for sale.

“However, in some cases, buyers were taking advantage of a small window of opportunity. The average new mortgage cost no more in January than it did in February, so they saw the chance to snap up a cheap mortgage before interest rates were hiked again. As February’s rate rise feeds through into new mortgages, we could see demand slow.

“This twist in the tale could be the final hurrah of the market before the gloom sets in. The impact of the war between Ukraine and Russia will have a profound impact on sentiment. Nobody likes uncertainty, but house buyers loathe it. When you’re about to make one of the biggest financial decisions of your life, fears about the possible escalation of war and the profound consequences it could have for the world and for your finances will weigh heavily on your mind.

“The conflict also means the price of gas and oil is rising significantly, which is likely to push inflation up way beyond the Bank of England’s prediction of 7.25%. Previous predictions that inflation would fall back by the end of the year are starting to look wildly optimistic. Buyers are aware that this could put banks under pressure to raise interest rates, which would make mortgage borrowing more expensive. Anyone considering a purchase needs to be comfortable with this risk – and not everyone will be.

“At the same time, these rising prices will make the cost-of-living crisis even worse. Some households are already borrowing more to make ends meet, and those with a bit more wiggle room in their budget are squirrelling money away to last them through more difficult times. As new and dramatically higher energy bills hit the mat, there will come a point when stretching your finances to get onto the property ladder feels like a step too far.”

Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay