Slowdown expected in UK house price rises

The average house price in the UK hit a new record last month although there were signs the rate of increase would slow "considerably" this year.

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David Sapsted

7 February 2022

Halifax's monthly house price index, published on Monday, showed that annual growth across the country remained at 9.7 per cent in January, although the month-on-month rise was only 0.3 per cent - the lowest monthly increase since June.Despite this, last month's rise meant that the average price of a home across the UK hit a record high of £276,759, with the Halifax warning that affordability remained at "historically low levels".

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Cost of living increases dampen house price growth

Russell Galley, Managing Director at the mortgage lender, said: “Following the peak activity of 2021, transaction volumes are returning to more normal levels."Affordability remains at historically low levels as house price rises continue to outstrip earnings growth. Despite record levels of first-time buyers stepping onto the ladder last year, younger generations still face significant barriers to home ownership as deposit requirements remain challenging.“This situation is expected to become more acute in the short-term as household budgets face even greater pressure from an increase in the cost of living, and rises in interest rates begin to feed through to mortgage rates."While the limited supply of new housing stock to the market will continue to provide some support to house prices, it remains likely that the rate of house price growth will slow considerably over the next year.”

A regional picture of the housing market

There continued to be wide variations on the annual rate of price rises among the regions and nations of the UK, with Wales starting 2022 as the strongest performing area with growth running at 13.9 per cent.Northern Ireland and Scotland also continued to record strong price growth, with prices up by 10.2 per cent and 8.9 per cent respectively.Within England, the North West was the strongest performing region, with values up by 12 per cent while Greater London saw the slowest growth at 4.5 per cent, although this was twice the annual rate recorded by the Halifax recorded in December and the capital's strongest performance in more than a year.

Housing stock shortage impacts rate of growth

Martin Beck, Chief Economic adviser to the EY Item Club, agreed that last month's slowdown in the rate of price increases could be a sign of things to come."This year won’t see a boost to prices from the stamp duty holiday which ran through much of 2021. To the extent the tax holiday brought forward purchases, its after-effects may drag on housing market activity in the near term," he said.Mr Beck pointed out that EY believed the Bank of England would further increase interest rates this year, pushing up mortgage rates."And the rising cost of living faced by households from higher inflation and tax rises mean it’s likely that fewer people will be able to afford to borrow the necessary amount they need to buy at higher mortgage rates,” he added.But Nicky Stevenson, Managing Director at estate agent group Fine & Country, said the lack of properties coming on to the market would continue to underpin price increases."The key driver of growth at present is the fact that the supply of housing stock remains so low and, without a strong injection of new listings, a correction in the market is unlikely to happen just by magic," she said."Signs that stock levels may improve in the coming months remain only tentative and, in the meantime, the clamour for homes nationwide remains undiminished."