U.K. House Prices Deliver Longest Winning Streak Since 2016

(Bloomberg) --

U.K. house prices rose for a ninth consecutive month in April as the housing market continued to defy an escalating cost of living crisis.

The 0.3% gain marked the longest winning streak since 2016 and lifted the average price of a home to a record 267,620 pounds ($335,000), according to a survey by Nationwide Building Society. Values were 12.1% higher than a year earlier.

The surge has been driven by a shortage of homes for sale and pandemic-driven demand for larger properties away from urban centers. However, Nationwide warned the mounting pressure on consumer spending power, with energy bills soaring and inflation at a 30-year high, is likely to cool the momentum.

“We continue to expect the housing market to slow in the quarters ahead,” Robert Gardner, chief economist at Nationwide, said in a statement on Friday. “The squeeze on household incomes is set to intensify.”

The growth in April was short of the 0.8% gain expected by economists, and the annual pace of house price inflation slowed from 14.3% in March.

Other headwinds facing the market include stretched affordability for first-time buyers and the prospect of further interest-rate increases from the Bank of England as it battles to bring down inflation.

What Bloomberg Economics Says ...
“There are signs the U.K.'s defiant housing market may be cooling. While the desire for more space and limited stock will support prices, a tight squeeze on incomes and higher interest rates are contributing to a softening in price growth.”
--Niraj Shah, Bloomberg Economics. Click for the REACT.

In a sign of potential trouble for the housing market, a BOE survey carried out in March found banks planned to significantly scale back mortgage lending amid fears that borrowers could start to default on their debts.

“It's surprising that conditions have remained so buoyant, given mounting pressure on household budgets which has severely dented consumer confidence,” Gardner said. “Consumers' expectations of their own personal finances over the next 12 months has dropped to levels last seen during the depths of the global financial crisis more than a decade ago.”

Race for Space

A typical home has jumped almost 52,000 pounds since the pandemic struck in early 2020, a 22% jump in prices. Nationwide also cited savings built up during the pandemic and a buoyant labor market as factors underpinning the market.

The increase has been led by rural areas such Wales and Southwest England, while London trailed behind. Survey findings published by Nationwide showed the “race for space” is continuing, though to a lesser extent than a year ago.

The housing boom has helped boost lenders such as NatWest Group Plc, which saw gross new mortgage lending reach 9.1 billion pounds in the first three months of the year, up from 8.4 billion pounds in the previous quarter, according to earnings released Friday.

“We continue to see strong demand coming through and we'll support our customers on that,” NatWest Chief Executive Officer Alison Rose said in a call with reporters. “It remains a very attractive asset for us and there are good returns continuing to drive growth.”