House prices still confounding predictions

New homes

House prices rose across the UK in November, confounding predictions that the housing market would cool off over the winter period. A monthly rise of 0.9% meant annual house price rises reach 10% year on year, despite the stamp duty tax holiday ending in October.

The UK’s average home is now worth £252,687 (according to Nationwide), an increase of over £33,000 more than before Covid-19 hit in March 2020.

Despite a shut down in the property market at the start of the pandemic, houses have continued to increase in value. Must of this is attributed to the rise in working from home, or the trend for out of town living, larger houses and more garden space.

Housing transaction levels have reached the levels seen prior to the financial crisis of 2008.

Nationwide warns that the outlook is still uncertain, particularly in view of the uncertainty around the new Omicron variant of coronavirus, as well as steep rises in the cost of living and potential increases to interest rates.

House price growth has outpaced income growth, making homes less affordable, and the average 20% deposit required to buy a property is now equivalent to a record high of 110% pre-tax income.

On average, the multiple of house prices over household income has been around 3.8, but is currently 5.5 on average – higher than it was in 2007.

It is estimated that 80% of younger people (aged 25 to 34) are unable to save or earn enough to afford the average first time buyer property (Resolution Foundation). Combine this with the predicted increase of £1,700 per average family household, due to higher energy and food prices, and it is difficult to see young families do anything other than struggle through 2022.