Annual house price growth rises to a 'modest' 2.5%

Written by Oliver Wade

According to Nationwide’s most recent House Price Index published this morning, annual house price growth rose 2.5% in July, up from the 2% figure reported last month.

This increase represents a 0.6% increase on property prices month-on-month, with the average house price (not seasonally adjusted) in July being £217,010 compared to £215,444 in June.

However, despite the slight uptick, Nationwide chief economist Robert Gardner said that these figures suggested “little change” in the balance between demand and supply in the market, with annual house price growth remaining within the “fairly narrow” range of 2-3%.

“Looking further ahead, much will depend on how broader economic conditions evolve, especially in the labour market, but also with respect to interest rates,” Gardner added.

“Subdued economic activity and ongoing pressure on household budgets is likely to continue to exert a modest drag on housing market activity and house price growth this year, though borrowing costs are likely to remain low.

“Overall, we continue to expect house prices to rise by around 1% over the course of 2018.”

Furthermore, amid rumours that the Bank of England’s Monetary Policy Committee (MPC) will vote to increase interest rates by 0.25% tomorrow (2 August 2018), Gardner expects that the impact to borrowers will be “modest”, with the average mortgage repayment increasing by just £16 per month for those not on a variable rate.

However, the share of outstanding mortgages on variable rates has fallen to its lowest level on recoard, at 35%, plummeting from its peak of 70% in 2001.

Though Trussle CEO and founder Ishaan Malhi stated that, for many, homeownership still feels “very out of reach”.

“House prices are slowly creeping up month-on-month and continuing to rise faster than wages. With a first-time buyer deposit costing just under two years’ of average earnings, there hasn’t been much relief for those hoping to get a foot on the property ladder,” Malhi said.

“An interest rate rise this week could also affect potential buyers. If rates are to rise, this should have a downward impact on property prices in the long-run, but first-time buyers will suffer the effects of incomes being squeezed and loan rates increasing, making it harder for them to get a mortgage in the short-term.”

Also commenting on the findings, Foundation Home Loans marketing director Jeff Knight added: “Whether a decision on interest rates materialises this week or later this year, or even beyond, is one thing, but for the majority of homeowners the actual impact to the housing sector is of bigger concern. A looming decision around rate rises may cast a shadow in terms of mortgage activity, with borrowers quickly locking in fixed rate offers, however the overall demand for mortgages continues to keep activity bubbling away.”

Knight goes on to add that, despite the demand for new mortgages still being there, a “lagging supply” of new builds is putting a “real dampener” on activity.

“With first-time buyers unable to – or choosing not to - get a foot on the property ladder and second-steppers unable – or choosing to wait - to move onto their next property, affordability and the range of properties available are the more pressing issues, for both homeowners and renters alike,” he concluded.

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