Buyer demand is unseasonably high for this time of year causing homes to be snapped up on average just 29 days after being listed for sale.
Our February House Price Index (HPI) shows yet again another strong month for demand as homebuyers search for more space, continuing the pandemic-led trend.
House price growth has dipped slightly from 8.4% last month but remains strong at 8.1%.
Latest home buyer demand figures
Homebuyer demand is up 65% on the five-year average in the four weeks to March. At the same time, the appetite for family homes is more than twice as high as usual for quarter one.
The number of sales agreed in the first three months of 2022 are 30% higher than 2020, according to our property data. London, meanwhile, has outpaced sales agreed over the same period last year when the wind of the stamp duty holiday was in the sails of the market.
With demand so strong, you’d expect owners of larger properties to be rushing to put the for sale signs up. Although the flow of new homes coming to market is up 5% on the five-year average and estate agents have reported a 3.5% monthly increase in new listings, the build-up is slow.
Total stock levels remained constrained as demand continues to far outweigh supply. Stock levels are 42% down on the long-run average but have improved. In December, they were 47% lower.
Window of opportunity for potential sellers
Potential sellers, particularly those with family homes, shouldn’t hesitate for too long. A combination of factors is creating a sweet spot of high demand that’s not expected to last all year.
Firstly, it’s worth noting that demand has already eased off since the beginning of the year.
The surge of activity witnessed in January equalled levels seen during the stamp duty holiday. The busy start to the year was fuelled not only by buyers reassessing their homeownership priorities but by owners selling up to crystallise the rapid increase in the value of their homes.
Adding additional momentum is the increase in interest rates. Since December, the Bank of England has increased interest rates three times from 0.1% to 0.75%.
The mortgage outlook
Mortgage interest rates remain low, but already lenders are starting to increase the cost of their mortgage deals. Independent economic forecasts are already warning that we can expect a further 0.25% rise in rates before the year is out.
This will create some impetus among buyers to move quickly to lock into a low rate now before they rise much further.
There’s also the possibility that this summer lenders may be given the green light to loosen their stress testing requirements. This means they’ll be allowed to offer more generous mortgages to borrowers which will boost their buying power.
As inflation continues to rise, now at 6.2%, the pressure on household budgets is mounting. And as geopolitical uncertainty grows due to the tragic invasion of the Ukraine – demand will fall back and price growth will ease.
Affordability impacts pricing
Affordability varies widely across the country and its effects can be seen in the rate of house price growth in those areas. In London, it costs 11 times average earnings to afford a property, pushing homeownership out of reach for many. In the north of England, that falls to 5 times earnings.
Ranked from highest to lowest London far and away takes the lead followed by southern England, the Midlands, Wales, the north of England and then Scotland.
It’s not surprising to see that as one of the most affordable markets, Wales has enjoyed the strongest price growth. For the 12th consecutive month Welsh house prices have risen the most.
Our latest HPI records an annual rise of 11.8%. Even then the average house price is £186,200 compared to the UK average of £245,200.
London, by contrast, has the lowest annual house price growth at 3.2%.
Buyer demand in cities bounces back
Unlike the urban rental market which took a big hit during the pandemic, home buying in cities remained healthy. This month, however, our residential property data shows a notable bounce back in the appetite for city living.
In recent weeks, demand in Newcastle is up 7% compared to January while Birmingham has seen a 5% rise in buyer demand. Positive signs that urban demand is on the up can also be found in smaller cities such as Blackpool and Swindon which have seen a rise of 20% and 19% respectively.
Similar trends can be seen in the rental market.
Outlook for house price growth and transaction levels remains unchanged
In the short term, the current levels of strong demand will continue leading to higher levels of activity.
But rising mortgage costs and mounting pressure on household finances as inflation rises along with global uncertainties caused by the invasion of Ukraine will slow down the pace of house price growth. As a result, we expect housing activity to return to more normal levels, around 1.2 million transactions this year.