House prices rose by 0.3% in April, taking annual house price growth to 12.1%, continuing a string of double digit growth for six consecutive months, according to Nationwide. The rapid level of house price inflation unmatched by income growth has squeezed affordability. The ratio of house prices to earnings reached a new high of 8.9 for England & Wales, compared to 7.7 in 2019, report the ONS.

The cost-of-living crisis is adding to affordability concerns, with banks building the higher costs into their checks on borrowers. Lenders expecting lower availability of mortgages in Q2 2022 outweighed those expecting increased lending by 22%, according to the Bank of England credit conditions survey. And the BoE has also increased the base rate to 1.0%, the fourth rise in five months. All of these factors will erode mortgage affordability and limit future house price growth. 

Increased supply of homes for sale could also help take some heat out of the market, eventually. The number of homes on the market has increased in each of the first three months of 2022, reverting to normal seasonal trends, according to TwentyCi. But that number is still 44% down on pre-pandemic levels and it could take many months to recover to more normal levels. So strong house price growth is therefore likely to continue over the short term. 

Low supply is not holding back market activity, with transactions in March totalling 111k, 12% above 2017-19 levels for the month. Demand from buyers remains strong, according to the RICS, and this is still converting into sales. Sales agreed remained 18% higher than pre-pandemic levels in April, according to TwentyCi. So high numbers of sales will continue for the next few months at least.

Rents are also rising quickly, driven by a lack of supply. They increased 11.0% in the year to March, up 1.0% month on month. Renewed investment by buy-to-let landlords may help to ease the shortage over coming months. New buy-to-let loans granted in February were 37% above the pre-pandemic average, according to UK Finance. And this supported the recent uptick in landlord instructions reported in the latest RICS survey. This will slow the rate of rental growth.

House price growth was strongest in Merthyr Tydfil and Pendle in Lancashire which saw annual growth of 22% and 21% respectively.

Rents grew 11.0% in the 12 months to March across the UK, according to Zoopla. This was the strongest rental growth since at least 2011, although month on month growth is starting to slow. Growth was widespread across the country, but particularly strong in London, the West Midlands and Wales. However growth has been decelerating in the majority of regions over the past 3-months, with the lowest growth in Scotland at 1.1%. 

Central London experienced the strongest annual rental growth, with the City of London, Kensington & Chelsea and Westminster the top performers, but rents there are now just 2.5%, 4.1% and 5.3% above their pre-pandemic level. Much of the growth seen has been making up the falls experienced during 2020 and early 2021. Outside of London, Purbeck in Dorset and Torfaen in south Wales saw the next strongest growth, at 21% and 17% respectively.