Real estate market branded ‘law unto itself’ after extraordinary growth in February

Economic logic and the British real estate market rarely go hand in hand, and this was the case again in February. Despite soaring living costs and rising interest rates, the annual rate of house price growth reached 12.6% last month, according to the latest National House Price Index — compared to 11.2% in January. The Price from a typical home is now phenomenal 20% higher than February 2020. Commenting on the figures, Robert Gardner, Nationwide’s chief economist, said:

“Annual house price growth accelerated to 12.6% in February from 11.2% in January and the fastest pace since June last year. Prices rose 1.7% over a month, after taking into account seasonal effects, the seventh consecutive monthly increase. The price of a typical house topped £260,000 for the first time in February, an increase of £29,162 over the past 12 months. This is the largest annual increase in cash since the launch of our monthly index in 1991.”

Scott Taylor-Barr of Shropshire-based mortgage broker, Carl Summers Financial Services, hit the nail on the head when he said “the UK property market is a law unto itself. The fact that average prices are 20% higher than two years ago, at the start of a global pandemic, is borderline fantastic. Rising interest rates and rising cost of living have clearly not yet impacted the real estate market as people still want to move up or up the ladder.

But Taylor-Barr suggested that price growth should moderate in the coming months due to “lenders’ affordability calculators becoming less generous and borrowing rates heading north.”

Ross Boyd, founder of the still-active mortgage comparison platform, Dashly.comalso struck a cautious tone despite the upbeat data: “The real estate market is absolutely flying but there is turbulence ahead. Many households are starting to feel the pinch and lenders are looking at affordability in ever-increasing detail, and that should slow the market as we progress through the year.

Toby Fields, co-founder of Bristol Langley House Mortgagesnotes that a significant contributor to the exceptional growth we are seeing is the absolute lack of housing on the market: the radical imbalance between supply and demand. Although the cost of living and interest rates are rising, the only thing that is not is the number of homes for sale. Dreadfully low inventory levels support prices and keep the market strong.”

His view was echoed by Andrew Montlake, managing director of UK-wide mortgage brokerage, Coreco: “The herculean performance of the real estate market in February is driven by a still galloping demand and an unprecedented lack of homes for sale. Don’t expect this pace of growth to continue, as there are countless headwinds ahead. Interest rates are expected to rise further to contain spiraling inflation, tax hikes are looming ever closer, and energy and grocery bills are skyrocketing. Going forward, people’s borrowing power is likely to decline as lenders factor in these additional costs, causing the market to cool.

In theory that’s true, but in practice, who would bet against it? The UK property market has a history of defying economic gravity and delivering curve balls of bricks and mortar.

Penny D. Jackson