U.K. Housing Market Posts Strongest Start to Year Since 2005

(Bloomberg) --

U.K. house prices registered their strongest start to the year since 2005 but the property market is set for a slowdown as the cost of living crisis intensifies, according to Nationwide Building Society.

The average value of a home rose 0.8% from December to 255,556 pounds ($343,671), the mortgage lender said Tuesday. The annual pace of growth accelerated to 11.2%, the most for any January for 17 years. Both figures were stronger than economists predicted. 

The housing market has defied the plight of the wider economy since the pandemic began, boosted by temporary tax incentives, a shortage of stock and demand for properties outside urban areas with room to work from home. However, the boom has stretched the finances of first-time buyers, who now face the prospect of higher interest rates, taxes and energy bills.

“Reduced affordability is likely to exert a dampening impact on market activity and house price growth, especially since household finances are also coming under pressure from sharp increases in the cost of living,” said Robert Gardner, Nationwide's chief economist. 

A 10% deposit on a typical first-time buyer home is now equivalent to 56% of total gross annual earnings, a record high, Nationwide said. Meanwhile, a typical mortgage payment as a share of take-home pay is now above the long-run average, despite mortgage rates remaining close to all-time lows.

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