BY SUE WHITBREAD
* Seasonally adjusted figure (note that monthly % changes are revised when seasonal adjustment factors are re-estimated)
Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist, said:
“Annual house price growth remained in double digits in December at 10.4%, making 2021 the strongest calendar year performance since 2006. Prices rose by 1% month-on-month, after taking account of seasonal effects.
“The price of a typical UK home is now at a record high of £254,822, up £23,902 over the year – the largest rise we’ve seen in a single year in cash terms. Prices are now 16% higher than before the pandemic struck in early 2020.
“Demand has remained strong in recent months, despite the end of the stamp duty holiday at the end of September. Mortgage approvals for house purchase have continued to run above pre-pandemic levels, despite the surge in activity seen earlier in the year. Indeed, in the first 11 months of 2021 the total number of property transactions was almost 30% higher than over the same period of 2019.
“At the same time, the stock of homes on the market has remained extremely low throughout the year, which has contributed to the robust pace of price growth.
Will the market cool in 2022?
“It appears likely that the housing market will slow next year, since the stamp duty holiday encouraged many to bring forward their house purchase in order to avoid additional tax. The Omicron variant could reinforce the slowdown if it leads to a weaker labour market. Even if wider economic conditions remain resilient, higher interest rates are likely to exert a cooling influence. Indeed, house price growth has outpaced income growth by a significant margin over the past 18 months and, as a result, housing affordability is already less favourable than before the pandemic struck.
“However, the outlook remains extremely uncertain. The strength of the market surprised in 2021 and could do so again in the year ahead. The market still has significant momentum and shifts in housing preferences as a result of the pandemic could continue to support activity and price growth. Indeed, the Omicron variant could serve to reinforce the shift in preferences in the near term.
Mixed picture across regions, but Wales top performing region over the year
“Our regional house price indices are produced quarterly, with data for Q4 (the three months to December) continuing to show a mixed picture across the country.
“Wales ended the year as the strongest performing region, with house prices up 15.8% year-on-year. This is the first time in the history of our regional series (which begin in 1973) that Wales has ended the year as the top performing region. Price growth remained elevated in Northern Ireland at 12.1%, the strongest end to the year for the region since 2007. Annual house price growth in Scotland was 10.1%, in line with the wider UK outturn (on a quarterly basis).
“England saw a slight increase in annual price growth to 9.0%, from 8.5% in the third quarter. While there was a slowing in northern England (North, North West, Yorkshire & Humberside, East Midlands and West Midlands), annual price growth continued to exceed that in southern England (London, Outer Metropolitan, Outer South East, East Anglia and South West).
“The South West was the strongest performing English region, with annual price growth of 11.5%, the largest calendar year increase in the region since 2004.
“This was closely followed by the Outer South East, which saw annual price growth increase to 11.3%, from 9.8% the previous quarter. The Outer South East, which includes cities such as Brighton, Southampton and Oxford, was also one of the strongest English regions in 2021.
“London was again the weakest performer, with annual growth remaining at 4.2%. London was the only UK region to see lower annual price growth in 2021 than in 2020, as shown in the table below.
“The North West saw the strongest growth of the regions in northern England, with annual price growth of 11.2%, similar to the previous quarter.
Affordability becoming more stretched
“Housing affordability still varies enormously across the UK. To explore how this is impacting potential buyers we used regional income data to calculate where in the income distribution a prospective purchaser would sit if they were purchasing the typical first-time buyer property in each region, with a 20% deposit and borrowing four times their income. If the typical buyer is located higher in the income distribution it suggests affordability is more stretched, with more people priced out of the market.
“In broad terms, the picture that emerges is that this hypothetical typical buyer is located further up the income spectrum as you go from the north to south of the country. For example, in Scotland and the North of England, this typical buyer would be in the 30th income percentile, while in the South West and South East they would be in the 80th percentile, and above the 90th percentile in London.
“Meanwhile in London, the South East and South West, affordability is even more challenging, with the typical buyer now located in the 80th income percentile rather than the 60th percentile as was the case ten years ago, signalling an even larger proportion of people priced out of the market or needing to borrow a greater multiple of their income in order to buy a home. Conditions remain most stretched in the capital. In 2011 the typical London buyer was already located in the 80th income percentile but is now above the 90th.
“As we highlighted in our recent affordability special report, raising a deposit is still the biggest hurdle for most prospective buyers. As the chart below illustrates, a 20% deposit in London is now nearly £88,000 (based on the average first time buyer house price), which is 183% of average annual gross income in the capital, up from 130% of income in 2011. In cash terms this is around £36,000 higher than a decade ago.
“While all regions have seen an increase in their deposit requirements, the rises are much more pronounced for the South and Midlands.”
Quarterly Regional House Price Statistics (Q4 2021)
* Seasonally adjusted
Nations – annual & quarterly price change
* Seasonally adjusted