House prices increased by 0.8% in January, making this the strongest start to the year since 2006. This pushed annual house price growth up to 11.2%, with 1 in 4 local authorities recording double digit growth, according to Nationwide. We expect elevated activity levels and positive price growth in the market to continue over the next few months.

Demand for housing strengthened as we entered the new year, up 49% in the 4 weeks to mid-January compared to the same period 2018-21, according to Zoopla. Buyer demand has increased for all property types. This included London flats, which had seen reduced demand, as workers return to the capital.

Sales agreed continue to run higher than pre-pandemic levels, 11% above 2017-19 levels for January, according to TwentyCi. Mortgage approvals were also slightly ahead of their pre-pandemic average in December, according to the Bank of England.

There are early signs of rising supply, after months of low stock. New instructions rose above the 2017-19 average for the final week of January, the first time since last May. It will take time for estate agents to replenish their books however, as stock levels remain 47% lower than the long run average, according to the RICS.

High transaction numbers are therefore likely to continue over the next few months. Transactions totalled 1.48 million in 2021, 280,000 more than the pre-pandemic average, and a post-GFC record.

The Bank of England voted to raise the base rate to 0.5% this week, as inflation reached 5.4% in December, according to the ONS. Mortgage interest rates are still low in a historical context however, and are unlikely to immediately impact existing home-owners on fixed-rate mortgages. First time buyers are likely to be hit harder, as they rely on higher loan-to-value mortgages, which are more sensitive to rate changes. And the rising cost of living will limit savings.

The three local authorities with the strongest annual house price growth in October included Merthy Tydfill at 23.1%, followed by Ceredigion and Clackmannanshire at 22.4% and 19.1% respectively. Eleven local authorities experienced annual house price falls. All were in London or the South East, including Islington at -3.6% and Slough at -0.6%.

Rents also rose by a significant 7.4% across the UK in the year to November 2021, according to Zoopla. The South West region saw the strongest rental growth, at 9.6%. But strong rental growth is scattered around the country. All local authorities saw positive rental growth in the year to November 2021, with the highest rental growth in Richmondshire at 22.9%, Folkestone and Hythe at 15.8% and Torfaen at 15.4%.

London has seen the strongest rental growth more recently, with 6.2% growth over the three months to November. The central London boroughs of Westminster, Kensington & Chelsea and Islington have seen the greatest rent rises over the same three month period, at 9.5%, 7.7% and 7.4% respectively.