House prices soar 10.9% in a year says Nationwide in the biggest rise since 2007

1st May 2014

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UK house prices have risen by a dramatic 10.9% rise over the past 12 months according to the Nationwide House Price index.

Month on month house prices have increased 1.2%. The average cost of a home in the UK has risen to £183,577.

Nationwide has suggested however that the mortgage market review which has introduced new regulations on affordability could have an impact on mortgage market activity.

Robert Gardner, Nationwide’s Chief Economist said: “The introduction of Mortgage Market Review (MMR) measures could have an impact on activity levels in the months ahead as the new measures bed down.

“However, underlying demand is likely to remain robust, as mortgage rates remain close to all-time lows and as consumer confidence improves further on the back of stronger labour market conditions and the brighter economic outlook.

“Earnings growth is beginning to pick up, with wage increases finally outpacing the rise in the cost of living in February. Nevertheless, house price growth is outstripping income growth by a wide margin. The risk is that unless supply accelerates significantly, affordability will become stretched.

“The upturn in construction of new homes continues to lag far behind the upturn in demand, with the number of new homes being built in England still around 40% below pre-crisis levels (and this was already insufficient to keep up with the increase in the number of households being formed).

“MMR measures, which place a greater emphasis on affordability, should help to ensure that prices do not become detached from earnings.

In London, the proportion of housing transactions involving properties over £500,000 has increased from 13% in 2007 to around 25% in 2013. Transactions involving properties of over £1m has more than doubled from 3% to more than 6%.

Alex Gosling managing director, online estate agents Housesimple.co.uk, says: “A 10.9% annual rise is a spectacular return to health for the housing market after the doldrums of years of flat prices.

“We haven’t talked about double digit house price growth since pre-recession times, and there’s no evidence to suggest that prices won’t continue on their upward curve.

“In fact, according to Nationwide’s figures, the average price of a house has grown every month since January 2013, bar a minor blip in August 2013, rising from £162,245 to £183,577.

“That’s an increase in average prices of 13.1% in 16 months. Consumer confidence is back with a vengeance, bouyed by a stronger economy and improving jobs market. Even tougher mortgage affordability rules introduced this month are unlikely to dent that confidence.”

“But we can’t hide from the facts – that absent sellers still remain a significant influence on property prices.

“New stock is struggling to keep up with demand in many areas, especially in London, where the dam of new properties has run dry.

“Our figures show, that since the start of the year more than a third of London properties have sold above asking price, as buyers bid against each other desperate not to miss out in fear that prices may run away from them.

“The problem is that sellers are either not in a rush to put their houses on the market as they look to cash in on booming prices, or they’re simply not in a position to sell.”

But Mr Gosling says that outside London it is more a case of bringing things back to where they were.

“Unlike London, which is a law unto itself, for many parts of the country the recession hit property prices like a meteor thumping the earth, and prices plummeted.

“Despite a double digit recovery, that has simply dragged many homeowners out of a negative equity position, and not into a position to move up the property ladder.”

Jonathan Samuels, chief executive of Dragonfly Property Finance, says: “The North/South divide remains as strong as ever, with London and the South East turbo-charged. London and the South East remain in a world of their own and it’s no surprise that higher end properties are seeing the most growth. Annual first quarter growth of 18% in London is staggering. Prime and super-prime properties are being targeted by overseas buyers and demand is extremely strong as a result.

“The issue for buyers now is very much affordability. Prices in some areas of the country are pulling away and are now miles ahead of income.”

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