'Unexpected' pick-up in house price growth at start of 2018

Annual house price growth saw a "surprising" pick-up in January, pushing average values to a new record high in cash terms, an index has found.

Nationwide Building Society said annual house price growth accelerated to a 10-month high of 3.2% in January, from 2.6% in December.

The average UK house price in January was £211,756, the highest on Nationwide's records.

Month-on-month house price growth stood at 0.6% in January, the same as the previous month.

Robert Gardner, Nationwide's chief economist, said: "The acceleration in annual house price growth is a little surprising, given signs of softening in the household sector in recent months."

He said house price growth has accelerated despite separate figures showing the squeeze on household incomes is taking its toll and also that mortgage approvals reached a three-year low in December.

Mr Gardner continued: "But activity has been subdued on both the demand and supply side of the market.

"The flow of properties coming on to estate agents' books has been more of trickle than a torrent for some time now and the lack of supply is likely to be the key factor providing support to house prices.

"How the housing market performs in the year ahead will be determined in large part by developments in the wider economy. Brexit developments will remain important, though these remain hard to foresee."

Mr Gardner said housing market activity is expected to slow only modestly, since unemployment and mortgage interest rates are expected to remain low by historic standards.

He said: "Similarly, the subdued pace of building activity evident in recent years and the shortage of properties on the market are likely to provide ongoing support for house prices."

Howard Archer, chief economic adviser at EY Item Club, said: "Despite January's stronger-than-expected data, we maintain the view that house prices will rise a modest 2% in 2018.

"The fundamentals for house-buyers are likely to remain challenging. The squeeze on consumers' purchasing power remained appreciable going into 2018, and it is likely to only gradually ease as the year progresses.

"Additionally, housing market activity is likely to be hampered by fragile consumer confidence and limited willingness to engage in major transactions."