Home prices continued to rise in April, but the growth rate is slowing as inflation rises and the cost of living crisis begins to affect the market, figures show.
The average amount paid to buy a home in the UK rose 0.3% to £267,620 in April from the previous month, Nationwide found, the ninth consecutive month of growth.
However, home price growth slowed from a 1.1% rise in March, the smallest increase since September last year, according to a monthly real estate index from the construction community.
On an annual basis, home prices rose 12.1% year over year, in a modest slowdown compared to 14.3% in March.
This boom was fueled by a housing shortage and city dwellers chasing larger homes, gardens and rural living that had been ignited by the epidemic.
However, Nationwide believes the market will slow as household budgets shrink and the cost of mortgages increases.
“It is surprising that conditions remain very prosperous, given the increasing pressure on household budgets, which has severely affected consumer confidence,” said Robert Gardner, chief economist at Nationwide.
We continue to expect the housing market to slow in the coming quarters. Pressure on household incomes is set to increase, with inflation expected to rise further, possibly reaching double digits in the coming quarters if global energy prices remain elevated.
“Furthermore, assuming labor market conditions remain strong, the BoE is likely to raise rates further, which will also put a damper on the market if this feeds into mortgage rates.”
The average price of a home in the UK has risen by nearly £50,000 since the start of the coronavirus pandemic in March 2020, according to Nationwide.
Given the shift in circumstances, she said, it was remarkable that a survey found that 38% of respondents stated that they were either in the process of relocating or considering a move. The proportion was particularly high in London, where nearly half said they were moving or considering a move.
“The overheated housing market is showing signs of slowing down,” said Myron Jobson, senior personal finance analyst at Interactive Investor.
“Mortgage affordability is a growing concern. The window for cheap mortgages is rapidly closing and the specter of higher interest rates means mortgage rates are likely to return to levels not seen in a while. The real estate market remains tough for homebuyers and is set to to get tougher from an affordability perspective.”
Nationwide said that despite the increasing pressure on families’ finances, the proportion of people moving or considering taking a step was higher than during the pandemic’s peak in April last year.
“The survey results indicate that shifts in housing preferences as a result of the pandemic continue to support housing market activity, albeit to a lesser degree than at this time last year,” Gardner said.
About a quarter (24%) of those who have moved or are considering a move said this was to move to a larger property, about the same percentage as last April. However, the proportion of those who indicated a desire to get away from the hustle of urban life or access a garden or more outdoor space fell to 12% and 15%, respectively, down from 25% and 28% last April. .
“Let’s be honest, slowing down from 14 to 12% is still a crazy growth rate,” said Rhys Schofield, managing director of Peak Mortgages and Protection. “What we may see is some of the madness about rising home prices fading away.”
In March, Nationwide said UK house prices were growing at their fastest rate since 2004, when the UK experienced a housing boom that preceded the financial crisis.
In October, the Office of Budget Responsibility (OBR), an independent body that sets the government’s economic forecasts, revised an estimate that home prices will fall this year.
Its revised forecast suggests the UK house price growth rate will slow to 3.2% this year and slow further to 0.9% in 2023.