UK house prices experienced record growth for 17 years

  • April 20, 2022

UK house prices experienced record growth for 17 years

UK real estate has been enjoying the limelight since the government announced a stamp duty holiday during the pandemic, to keep the sector buoyant. It is one of the most stable markets that proved to be resilient during the global pandemic and experienced high demand with low supply countrywide. The UK real estate market did exceptionally well, especially in the residential sector.

2022 started with a bang for the UK realty market, with house prices grew at the fastest rate in March since 2004. The price of an average house in the market is a fifth higher than at the start of the global pandemic – making it a record-breaking start of the year for the UK property sector.

A record increase in UK house prices

According to Nationwide, the UK house prices increased by 14.3 percent in the year to March, which is the strongest increase since November 2004, when the UK property market experienced a boom preceded by the financial crisis.

The price of an average UK house reached £265,312, which is around £33,000 more than the average prices recorded in March 2021. Interestingly, the price rise was evident across the country, with a 15 percent increase in Wales over the year.

Demand for bigger and detached homes increased

The global pandemic has added more to the demand for bigger and detached homes across the country. The prices of detached homes have gone up by £68,000 compared to the property prices at the beginning of the pandemic. This rise is almost 22 percent as people working from home sought out bigger homes.

The UK apartment prices have increased by £24,000 on average, which is around 14 percent.

Property prices increased despite the economic slump

It is worth noticing that the average rise in property prices has been observed despite the economic slump and the damage done to the economy due to slow activity induced by the pandemic. However, the government reforms including wage support schemes, stamp duty relief and people’s personal savings during lockdowns have helped the UK housing market grow back bigger and stronger.

According to Nationwide, the reduced spending during the lockdown means that the households have saved £190 bn. on average – much more than have been expected before the pandemic, which was £6,500 a household.

The real estate experts predict a stronger and better real estate market in 2022. However, a few of them are of the opinion that inflation will rise and so are the interest rates and these factors may dampen the price growth and adversely affect the UK property prices.

“The housing market has retained a surprising amount of momentum given the mounting pressure on household budgets and the steady rise in borrowing costs,” said Robert Gardner, Nationwide’s chief economist. “A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices.” However, he said he expected the market to slow in the coming months.

“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,” Gardner said.

What will happen if the interest rate changes?

Houses or properties are considered unusual assets that buyers are mostly price-insensitive about. Savvy investors and end-users hardly show concerns about the “headline price” of a property.

How do most people buy a property in the UK? Only a smaller chunk of investors buy through cash but most of the buyers take the mortgage option. In this scenario, what will be the real price of a house? Will it be the total asking amount? No, it will be the monthly payment that you will pay to secure your house.

For a cash buyer, the difference between £150,000 and £200,000 is significant, while for a mortgage-based buyer, the difference does not matter. For instance, a mortgage buyer commits to repaying the mortgage over 25 years and on monthly basis, he will have to pay £900, the difference between the two amounts will not be an issue, as, by the end of a mortgage term, he will own a house.

Therefore, an increase in mortgage rate will not affect the market as much as employment can. It is because as long as people have jobs, they can make their mortgage repayments. And house prices will also depend upon the factor that how much debt that mortgage repayment will buy you.