29th August 2014
Property prices have increased for the sixteenth successive month, taking annual house price growth to 11%.
The latest figures from Nationwide reveal the recent slowdown in prices could be just a blip and the pace of growth is picking back up.
Prices increased 0.8% in August, compared with a 0.2% rise in July and annual price rise figures also showed an increase in August to 11% from 10.6% the month before. This marks the sixteenth successive monthly price rise.
These rises takes the average house price to £186,306, although Nationwide economist Robert Gardner said the annual pace of house price growth is still below the 11.8% recorded in June.
However, he added that wages could not keep up with rocketing house prices.
‘While [the 11% annual growth] is still below the 11.8% recorded in June, house price growth continues to outpace earnings by a wide margin, with average wage growth running at less than 1$ in recent months,’ he said.
‘Nevertheless, at a national level housing affordability does not appear stretched by historic standards, in part due to the low level of mortgage rates. The cost of servicing a typical mortgage remains close to the long run average as a share of take home pay.’
Gardner notes that despite the prevalence of cheap mortgages ‘the outlook for the housing market remains highly uncertain’, as tougher affordability rules make it harder for borrowers to access lending.
‘The number of mortgage approvals fell by almost 20% between January and May, suggesting that activity was cooling,’ he said. ‘However, there was a modest rebound in June and it is unclear how much of the slowdown was due to the introduction of the mortgage market review rather than an underlying loss of momentum.’
The prospect of interest rate rises is also thought to have tempered an appetite for borrowing, and subdued wage growth is expected to contribute to a slowdown in future.
‘The brightening economic outlook is likely to provide ongoing support for housing demand. Consumer sentiment remain buoyant thanks to declining inflation and sustained increases in employment,’ said Gardner. ‘Similarly the first interest rates still appear some way off – we expect the first increase in the first quarter of 2015. Guidance from the Bank of England suggests that the increase in interest rates is likely to be gradual, and they are expected to settle at a level somewhat below the average prevailing before the financial crisis.
‘Moreover, the supply side of the market remains constrained, which will continue to provide underlying support for prices.’
Alex Gosling, managing director of Housesimple.co.uk said August house prices should be taken with ‘a pinch of salt’ as activity tends to fall due to the summer holiday exodus.
‘September should give us a better guide as to the sentiment in the market. Don’t be surprised to see prices ease next month.’
Gosling added that while there was interest in seeing where the London property market ‘goes next’ there are signs that it is cooling.
‘Price growth has slowed, which is not necessarily a bad thing as property prices were climbing at a breathtaking and unsustainable pace,’ he said. ‘But the concern will be how far do prices have to drop before panic starts to set in. The London market has propped up the rest of the country during the hard times. Fortunately, there’s a feeling now that the rest of the county is not so reliant on the capital and can survive out in the wild on its own.’