A shortage of homes to sell is the catalyst for a seventh consecutive month of house price growth.

Due to the lack of houses available for sale, the house price spiked to 12.6% for the seventh consecutive month. This raises concerns that first-time buyers may find it more difficult to purchase the property.

Prices of the average home increased by 1.7% in February to more than £260,000 for the first time, said the building society Nationwide, accelerating the pace of growth from 11.2% in January.

Analysts had predicted a lower price increase last month. Analysts stated that buyers were motivated to buy homes before the peak Easter buying period by the removal of Covid restrictions owing to Omicron variation, and the threat of several interest rate rises from the Bank of England.

Average UK house price rises by £25,000 in a year
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The stiff competition between lenders in the mortgage industry was another factor that drove up prices.

Nationwide said the increase pushed the average British house price to £260,230, after soaring by almost £30,000 over the past 12 months – the biggest annual increase in cash terms that its monthly index has recorded in more than 30 years of its existence.

Nationwide reports that the average house’s value is now five times higher than it was in February 2020, the time before the UK coronavirus lockdowns. This equates to a cash increase of £44,140.

Nationwide found that house prices have increased faster than wages in recent years, making housing affordability harder. The average home cost is now 6.7 times higher than it was in 2019 (compared to 5.8 in 2019).

Robert Gardner, Nationwide’s chief economist, said housing market activity had remained robust in recent months, with mortgage approvals continuing to run above pre-pandemic levels at the start of the year.

He said: “A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices.

“The continued buoyancy of the housing market is a little surprising, given the mounting pressure on household budgets from rising inflation, which reached a 30-year high of 5.5% in January, and since borrowing costs have started to move up from all-time lows in recent months.

“The strength is particularly noteworthy since the squeeze on household incomes has led to a significant weakening of consumer confidence.”

Ross Boyd, the founder of the mortgage comparison platform Dashly.com, said: “First-time buyers are as keen as ever to get out of the rental market and on to the property ladder, as it’s usually cheaper to own if you can find the deposit.

“The major challenges facing the market right now are a scandalous lack of stock, interest rate rises and the surging cost of living.”

Martin Beck, chief economist advisor to EY Item Club stated that the majority of purchases would be made in households that had saved during the pandemic and are therefore better able to handle rising living costs when they make a purchase.

Some households might also believe that the Bank of England won’t raise rates by more than 1% because of the ongoing conflict in Ukraine and the growing uncertainty about the economic outlook.

“But overall, while the cost of mortgages may rise more slowly than had been expected, the outlook for the housing market is looking less buoyant,” he said.

Gardner stated that the Bank would not hesitate this fiscal year to raise rates if the labor force remains strong and inflation continues rising towards 8.8%, which many analysts had predicted.

“Assuming that labour market conditions remain strong, the Bank of England is likely to raise interest rates, which will exert a further drag on the market if this feeds through to mortgage rates.

“Housing affordability has already become more stretched, in part because house price growth has been outstripping earnings growth by a wide margin since the pandemic struck.”