UK house prices rise 11% annual rate despite cost of living crisis

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A strong labor market and limited housing stock helped boost annual house price growth in the UK to double digits in July, despite rising interest rates, high inflation and weaker affordability.

UK house prices rose at an annual rate of 11% last month, up slightly from 10.7% in June, according to mortgage provider Nationwide.

The increase took the average house price to £271,209, £55,000 more than in February 2020 before the Covid-19 pandemic.

Although month-over-month price growth slowed from 0.2% to 0.1%, July marked the 12th consecutive monthly increase, maintaining double-digit annual price growth for the ninth consecutive month. .

“Demand continues to be supported by strong labor market conditions,” said Robert Gardner, Nationwide’s chief economist. “At the same time, the limited stock of homes on the market has helped keep the upward pressure on house prices.”

Housing stock remains weak, with the average number of properties for sale per surveyor at a 40-year low, and the effect of inflation at a 40-year high of 9.4% and consumer confidence to record lows were highlighted by a cooling of Nationwide-managed mortgage deals.

Total housing market transactions in the three months to May were around 20% below high levels resulting from the suspension of stamp duties, Nationwide reported, but they were still 5% above levels in before the pandemic.

During the same period, transactions involving mortgages for movers slowed more than others, while mortgage completions for first-time buyers remained resilient.

Column chart of annual % change showing that UK house prices are set to contract

This is despite the fact that house price growth continues to outpace earnings by a significant margin, increasing the required deposit. National data showed the average home price was seven times higher than typical incomes in the second quarter, the highest ratio on record since data began in 1983. Coupled with higher interest rates, rising prices drove up mortgage payments relative to income.

With mortgage rates set to rise further and the cost of living crisis to worsen, experts said they expect the housing market to cool in the coming months.

“We continue to expect the market to slow as pressure on household budgets intensifies over the next few quarters, with inflation expected to reach double digits towards the end of the year,” Gardner said. .

Consulting firm Oxford Economics predicts that house prices will start to contract on an annual basis from the middle of next year and will continue to decline throughout 2024.

Andrew Wishart, senior real estate economist at Capital Economics, said the removal of the stress test in mortgage approvals from August 1 could lead house price growth to regain momentum, but he warned that it would be short-lived.

“While limited inventory has supported prices so far, we think it’s only a matter of time before deteriorating demand pushes property prices down,” Wishart said. adding that he forecast a 5% decline over the next two years.

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