The average UK home now valued at £217,010 having risen from £215,444 the previous month.
The data indicates that house price growth rose to 2.5 per cent in July, up from two per cent in June, with the average UK home now valued at £217,010 having risen from £215,444 the previous month.
This moderately positive news comes ahead of the expected rise tomorrow in the Bank of England Base Rate, potentially to 0.75 per cent, which would be the highest level since 2007.
However, many experts suggest that even though the rate may increase, this would have a limited impact on the current housing market as borrowing costs would still be comparatively low.
Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist, said: “There was a slight uptick in annual house price growth in July.
“Nonetheless, annual house price growth remains within the fairly narrow range of circa two to three per cent which has prevailed over the past 12 months, suggesting little change in the balance between demand and supply in the market.
“Looking further ahead, much will depend on how broader economic conditions evolve, especially in the labour market, but also with respect to interest rates.
“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 one per cent over the course of 2018.”
Talking about the scheduled interest rate announcement tomorrow, Robert added, “It is looking increasing likely that the Bank of England’s Monetary Policy Committee (MPC) will increase rates at their next meeting on 2nd August.
Clearly, much will depend on the Committees’ assessment of the outlook for growth and inflation, but most economists and investors expect Bank Rate to be increased from 0.5 per cent to 0.75 per cent.
“Clearly, much will depend on the Committees’ assessment of the outlook for growth and inflation, but most economists and investors expect Bank Rate to be increased from 0.5 per cent to 0.75 per cent.
“Providing the economy does not weaken further, the impact of a further small rise in interest rates on UK households is likely to be modest.”
So why would an interest rate rise, taking the rate to over half a percent for the first time in over a decade, potentially have such a small impact on the housing market?
Firstly, the vast majority of borrowers have taken a fixed rate product over the last few years, meaning that to a point, they are insulated against a rise in the cost of borrowing in the short to medium term.
It’s only those on their lender’s revert rate (or Standard Variable Rate) and tracker deals who would experience a change in their mortgage payment almost immediately, yet the majority of UK households wouldn’t see a difference until their current fixed rate ends.
Also, as an interest rate increase has been flagged for such a long time, due to Bank of England Governor Mark Carney’s policy of forward guidance, many lenders have already accounted for a quarter per cent rise in the rates they are currently offering.
Brian Murphy, Head of Lending for Mortgage Advice Bureau explained: “This morning’s figures indicate a modest level of month on month growth, which highlights that the delicate balance between stock and supply has been maintained in recent weeks.
“This would perhaps suggest ongoing buyer confidence and that those who are currently transacting are doing so regardless of any political and economic uncertainty.
Bank of England Governor Mark Carney
“That all said, the fragmented market conditions we’ve seen of late remain, with some parts of the UK performing better than others both in terms of transaction numbers and values, a picture which is likely to continue for the foreseeable future.”
Brian continued: “With many lenders already pricing in a rate rise, should it be announced tomorrow, whilst there may be a short-lived reaction to any increase, given the current levels of buyer demand versus available homes for sale, any impact is most likely to be sentiment-based in real terms.”
Russell Quirk, founder of online estate agent agreed and said: “It would seem that reports of the property markets death are greatly exaggerated with the latest figures showing an appropriately warm uplift in house price growth for this time of year.
“That said, in many areas, asking prices are continuing to realign themselves with wider market conditions and so a marginal increase in the cost of borrowing shouldn’t deter those in the appropriate position to buy.”
Overall, it’s more likely that the current political and economic jitters will have more of an influence on the housing market in the next few weeks than a quarter per cent interest rate rise tomorrow, as until such times that a clear way forward around Brexit is agreed, many discretionary buyers are holding on to see what will happen before making any decisions.
At the moment, mover numbers are primarily those whose life circumstances have dictated that they have to buy or sell, for example needing to relocate due to employment or education factors, or indeed relationship circumstances such as divorce or separation.
However, by the end of the Summer, once Parliament is reconvened and our departure from the EU draws ever closer, it’s likely we will see buyer and seller sentiment polarise once clarity on our exit strategy is achieved.
In the meantime, many expect a slower August than normal as the UK property industry collectively holds its breath over the holiday period.
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