Biggest house-price leap in four years sparks affordability worry

Nationwide warns affordability may become 'stretched' if demand continues to outstrip supply

The sharpest monthly rise in house prices for more than four years prompted warnings of property prices heading out of the reach of thousands of would-be buyers on Friday, as new figures showed a fresh surge in lending from banks and building societies.

Nationwide, the UK’s biggest building society, reported a 1.4 per cent jump in average house prices to £175,826 in December – the biggest rise in a single month since August 2009. This leaves prices 8.4 per cent ahead of a year earlier after 12 months in which the Bank of England’s Funding for Lending scheme and then the Coalition’s Help to Buy initiative have transformed the mortgage lending market.

Mortgage affordability is close to the long-term average – supported by record low interest rates of 0.5 per cent – with households spending around 29 per cent of their income on repayments. But the supply of new homes has not kept pace with demand following the recent upturn in lending, building pressure on house prices and the ability of homeowners to make repayments as wage growth remains far more sluggish, according to the Nationwide’s chief economist, Robert Gardner.

He said the supply of new homes “remains constrained”, adding: “The risk is that if demand continues to run ahead of supply in the quarters ahead, affordability may become stretched.”

While overall UK prices are still 5 per cent below their 2007 market peak, average prices in London now stand at £345,186 after a 14.9 per cent rise in the past year. This puts property in the capital 14 per cent above the 2007 peak, supported by a shortage of homes, queues of foreign investors and a stronger economy than the country at large.

The latest Bank of England figures showed mortgage approvals jumped 4 per cent to 70,758 in November –  above 70,000 for the first time since January 2008 and contrasting with falling business credit during the month. In November, Bank Governor Mark Carney acted to stem the flow of cash into the housing market by closing the FLS,  which allows banks to access cheap funding from the central bank, to mortgage lending and instead refocusing the scheme on business loans.

The mortgage lending surge has helped kick-start activity in the construction industry, which is in the midst of its longest hiring spree since 2008 according to the Chartered Institute of Purchasing & Supply. Cips’ December snapshot of industry activity, where a score over 50 signifies expansion, remained close to record levels, easing slightly from 62.6 to 62.1 in the month.

Construction firms have taken on staff for seven months in a row, the longest consecutive period of job creation for five-and-a-half years, as more confident clients give the go-ahead to projects. Commercial building saw the strongest growth in December, even outstripping housebuilding.

The survey from a sector that accounts for 6 per cent of the overall UK economy follows a strong December for manufacturers, raising hopes the UK can post growth in the final quarter  at least as strong as the 0.8 per cent between July and September. Tim Moore, Markit senior economist, said the industry’s revival “should keep staffing levels moving strongly upwards” during 2014.

David Tinsley, BNP Paribas UK economist, added: “Overall, the picture from the data remains consistent with a UK recovery that has been fairly household-led. The housing market is recovering strongly and this has seen some useful rise in construction activity too. And this construction uptick is spreading beyond just housing, which is encouraging.”

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before