"There are many more buyers than properties for sale, and those buyers are armed with savings due to the lack of spending during the pandemic."
Prices rose by 1.1% month-on-month, after taking account of seasonal effects, the eighth consecutive monthly increase.
The price of an average UK home climbed to a new record high of £265,312, with prices increasing by over £33,000 in the past year. Prices are now 21% higher than before the pandemic struck in early 2020.
Robert Gardner, Nationwide's chief economist, said: “The housing market has retained a surprising amount of momentum given the mounting pressure on household budgets and the steady rise in borrowing costs. The number of mortgages approved for house purchase remained high in February at around 71,000, nearly 10% above pre-pandemic levels. A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices.
“The continued buoyancy of housing demand may in part be explained by strong labour market conditions. The unemployment rate has continued to trend down in recent months (to 3.9% in the three months to January) from already low levels. Wage growth has accelerated, though it is running below inflation.
“The significant savings accrued during lockdowns is also likely to have helped prospective homebuyers raise a deposit. We estimate that households accrued an extra c£190bn of deposits over and above the pre-pandemic trend since early 2020, due to the impact of Covid on spending patterns. This is equivalent to around £6,500 per household, although it is important to note that these savings were not evenly spread, with older, wealthier households accruing more of the increase.
“Nevertheless, we still think that the housing market is likely to slow in the quarters ahead. The squeeze on household incomes is set to intensify, with inflation expected to rise further, perhaps reaching double digits in the quarters ahead if global energy prices remain high. Moreover, assuming that labour market conditions remain strong, the Bank of England is likely to raise interest rates further, which will also exert a drag on the market if this feeds through to mortgage rates."
Tomer Aboody, director of MT Finance, commented: "Space, space and more space has been the real driver of demand in the housing market over the past 12 to 18 months. Buyers have been adapting to the trend of working from home at lease some of the time, and need designated space to do so.
"With the lack of supply of good-sized homes, prices have surged. There are many more buyers than properties for sale, and those buyers are armed with savings due to the lack of spending during the pandemic. On top of this, lower interest rates mean they can afford bigger mortgages.
"Regional trends further demonstrate the demand for fresh air and space, with countryside and coastal regions seeing the highest growth in demand and prices."
Andrew Montlake, managing director of Coreco, added: "The exceptional rate of annual house price growth in March should create more unease than it does celebration. Yes, the jobs market is strong but the once-in-a-generation cost of living crisis and rising interest rates will almost certainly start to calm activity levels in the months ahead. However, average property values are unlikely to fall materially as mortgage rates are still very competitive and supply levels are obscenely low. The supply and demand imbalance will support average values moving forward. A key driver of activity at present is people's desire to get out of the rental market, where prices are often ridiculously high. Though it remains at the back of the pack in terms of regional price growth, London is starting to gain a lot more momentum."
