UK house prices growing strongly but affordability and higher supply issues loom

House price growth will come under pressure from increasing supply and affordability issues, said building society Halifax. A housing shortage in some areas of the country, low interest rates and a healing economy have fueled house prices in recent years. The Halifax House Price Index for February 2016 said average prices rose 9.7% over the year to £209,495. The quarterly increase was 3%.

"Prices continue to rise at a robust pace driven by a significant imbalance between supply and demand," said Martin Ellis, Halifax housing economist. "Whilst this position is likely to continue over the coming months, there are some tentative signs that the supply situation may be beginning to improve. Instructions for secondhand properties coming up for sale have increased in the past two months and the level of housebuilding increased significantly in 2015. Further ahead, increasing affordability issues, as house price increases continue to exceed wage growth, are likely to curb housing demand and cause price growth to ease."

Nationwide, another mortgage lender, released its February index for house prices on the same day. Its data said the average house price increased 4.8% over the year to £196,930. Over the quarter, this rise was 1.3%. Nationwide's house price-to-earnings ratio for first-time buyers shows just how much prices have run away from incomes in recent years. In the final quarter of 2015, the ratio was 5.2 times earnings. At the turn of the century in 2000, it was just 2.0.

House building is accelerating in England but is still running at around half the level needed to meet demand, according to several estimates. There were 142,890 housing completions in England during the year to December 2015, a 21% annual increase. Housing starts lifted 6% to 143,560. There are several constraints on the construction sector, including the high price of land, strict planning rules, and a serious labour shortage which is holding up work.

High house prices and rents are trapping aspiring home owners who struggle to afford to save for a deposit or secure a large enough mortgage to buy their first property. The government wants to increase home ownership, which declined from its 2003 peak of 71% of households being owner-occupiers to 64% in 2014/15, says the English Housing Survey. To mitigate high house prices, the government has a number of schemes to help first-time buyers onto the property ladder. Among them are Help to Buy, shared ownership and starter homes.