Nationwide say that this rise sees average house prices exceed £260,000 for the first time, piling further pressure on first-time buyers with the price of a typical home now 20% higher than in February 2020.
Robert Gardner, Nationwide's Chief Economist, comments: “Annual house price growth accelerated to 12.6% in February, up from 11.2% in January and the strongest pace since June last year. Prices rose by 1.7% month-on-month, after taking account of seasonal effects, the seventh consecutive monthly increase.
“The price of a typical home rose above £260,000 for the first time in February, an increase of £29,162 over the past 12 months. This is the largest ever annual increase in cash terms since the start of our monthly index in 1991. The price of a typical home is now £44,138 (20%) higher than in February 2020 - the month before the pandemic struck the UK.
“Housing market activity has remained robust in recent months, with mortgage approvals continuing to run above pre-pandemic levels at the start of the year. A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices.
“The continued buoyancy of the housing market is a little surprising, given the mounting pressure on household budgets from rising inflation, which reached a 30-year high of 5.5% in January, and since borrowing costs have started to move up from all-time lows in recent months.
“The strength is particularly noteworthy since the squeeze on household incomes has led to a significant weakening of consumer confidence. Indeed, consumers’ view of the general economic outlook and prospects for their own financial circumstances over the next 12 months have plunged towards levels prevailing at the start of the pandemic.
“The economic outlook is particularly uncertain at present. Nevertheless, it is likely that the housing market will slow in the quarters ahead. The squeeze on household incomes is set to intensify, with inflation expected to rise above 7% in the coming months.
“Indeed, there is scope for inflation to rise even further as events in Ukraine threaten to send global energy prices even higher. Assuming that labour market conditions remain strong, the Bank of England is also likely to raise interest rates, which will exert a further drag on the market if this feeds through to mortgage rates.
“Housing affordability has already become more stretched, in part because house price growth has been outstripping earnings growth by a wide margin since the pandemic struck. The price of a typical home is now equivalent to 6.7 times average earnings, up from 5.8 in 2019.”
Tom Bill, head of UK residential research at Knight Frank, said: “I don’t expect a return to more muted house price growth until supply picks up and there are signs of that gradually happening While demand has been unrelenting over the last several months, higher levels of market valuations requested by prospective sellers since the start of the year indicate that supply will pick up, particularly as the spring market arrives.
"We would therefore expect price growth to return to single digits later this year. Meanwhile, mortgage rates will inevitably rise and higher inflation, accelerated by the effects of the Ukraine conflict, will start to put downwards pressure on demand and house prices. While the Bank of England may adopt a more risk-averse approach to raising the base rate given the geopolitical uncertainty, mortgage rates are still playing catch-up and lenders are likely to keep withdrawing their best products.”
Tomer Aboody, director of property lender MT Finance, says: "Accelerated house price growth in February demonstrates that buyers are back in the swing of things after the Christmas break.
"Competition among buyers is fierce, with multiple offers being received in many instances. Some vendors are selling before finding somewhere to move to, in order to take advantage of high prices, and opting for rented accommodation until the dust settles.
"With interest rates rising, affordability is becoming even more of an issue, particularly for younger buyers struggling to afford their first home.
"Of course, the terrible war in Ukraine cannot be ignored, and how this might impact the UK. With purses already squeezed as the cost of living rises, the Bank of England might reconsider at its proposed interest rate increases in forthcoming months, in order to minimise the hit on consumers."
Phillip Stevens, director of Richmond estate agency Antony Roberts, says: "While this data is behind the curve as it is based on completions, and there is probably a little more caution out there than these numbers indicate, buyers continue to face a lack of choice due to lack of stock.
"While these figures show that the national average property price is rising, the reality is there isn’t one single market – what is happening with prices is very different depending on the profile of the property. Flats without outside space are still struggling to sell and will come off in value whereas houses are few and far between and increasing in value.
"As long as there is a shortage of supply and significant demand, pricing will be bullish."
