House prices have soared 11 percent a year, according to Britain’s largest building society, Nationwide, despite rapid interest rate increases this year.
The average house is now worth £271,209 with property inflation rising in July the 10.7 percent growth registered in June, and it was the twelfth consecutive month that housing prices increased.
The building society said the housing market had maintained a “surprising degree of momentum” amid the rising cost of living.
But prominent real estate broker Knight Frank said large increases in new mortgage rates meant “a slowdown is coming” for the housing market.
Pandemic boom: House prices have soared after an initial flicker at the start of the Covid-19 pandemic, the Nationwide index shows
Nationwide said it expects the market to slow as the cost-of-living crisis continues, with inflation expected to reach double digits later in the year.
The Bank of England’s Monetary Policy Committee is forecast to raise the base rate by 0.50 basis point to 1.75 percent on Thursday as it struggles to control inflation.
The large increase in the base rate of 0.1 per cent at the end of 2021 has led to a spike in mortgage costs, with new fixed-rate offers jumping up substantially to potentially add hundreds of pounds to the monthly cost of buying a home.
If the base rate continues to rise, it will increase the pressure on some borrowers and potentially force others out of the market.
Commenting on the figures, Robert Gardner, Nationwide’s chief economist, said: “The housing market has retained a surprising degree of momentum given mounting pressures on household budgets due to high inflation, which has already pushed consumer confidence to historical lows”.
“While there are tentative signs of a slowdown in activity, with the number of home purchase mortgage approvals falling in June, this has yet to translate into price growth.”
The price isn’t right: Buying a home is more expensive recently than ever compared to wages, Nationwide data shows
However, others are less optimistic. Tom Bill, head of UK residential research at Knight Frank, said: “Despite double-digit house price growth, a slowdown is ahead.
‘Mortgages have gotten noticeably more expensive in recent months and inflation will get worse before it gets better.
“For those wondering how house prices can continue to grow as the cost of living contraction intensifies, the answer is that they are happening for the same reason: a supply chain disruption.
“As more properties are listed and demand eventually slows down with higher rates, we expect price growth to fall to single digits this year.”
Analysts at Capital Economics have predicted that house price growth will not just slow, but fall, forecasting a 5 percent drop from current levels by the end of 2023.
The firm’s Andrew Wishart said: “We think the main takeaway from the July numbers is that house prices may already be stagnating.
“So while limited inventories have supported prices so far, we think it’s only a matter of time before deteriorating demand causes house prices to fall.”
Continued climb: UK house price growth has persisted despite economic headwinds
How well is the housing market holding up?
A separate report from real estate portal Zoopla today contradicts forecasts for falling property values, predicting house prices to rise 5 percent in 2022 as a whole.
It has forecast 1.3 million sales by the end of the year, 100,000 more than originally forecast.
Zoopla said its data showed there were enough people wanting to move home to maintain “normal” levels of market activity.
Research by the company found that UK house prices had increased by 8.3 per cent in the last 12 months, bringing the median house price to £256,600.
And the most modestly priced areas are experiencing the fastest growth, as demand for homes remains at 25 percent above the five-year average.
Demand for properties begins to slow as inventory levels recover from a low base earlier in the year.
Wales and the South West continue to experience some of the largest house price increases in the UK.
Coastal towns see a slowdown in home prices
Regionally, Wales experienced the highest year-on-year house price growth at 11 per cent, with the South West and East Midlands also seeing double-digit growth.
Looking at individual towns and cities, Wigan saw growth of 11.8 per cent, while homeowners in Mansfield saw an 11.6 per cent increase and Warrington house prices increased by 11.2 percent.
By contrast, coastal areas such as Truro in Cornwall, Torquay in Devon and Canterbury in Kent are seeing a slowdown, Zoopla said.
Buyer demand in these areas is now up to 16% below the five-year average and 22% or more below July 2022 levels.
First-time buyer activity remains 5 percent above pre-pandemic levels, despite ongoing affordability pressures.
The average property now costs almost nine times the typical salary, as affordability of house prices in England has reached the worst level ever recorded by the ONS.
News that the Bank of England scrapped its affordability test had raised hopes that it would make it easier to get a mortgage approved, but experts warn it is unlikely to have a significant impact on lenders’ approach.
The best mortgage rates and how to find them
Mortgage rates have risen substantially as the Bank of England base rate has risen rapidly.
If you’re thinking about buying your first home, moving or remortgaging, or are a buy-to-let landlord, it’s important to get good, independent mortgage advice from a broker who can help you find the best deal.
To help our readers find the best mortgage, This is Money has partnered with independent broker L&C.
Our L&C-powered mortgage calculator can allow you to filter offers to see which ones best match your home value and deposit level.
You can also compare different fixed-rate mortgage durations, from two-year arrangements to five-year arrangements to ten-year arrangements, with monthly and total costs displayed.
Use the tool at the link below to compare the best deals, taking both fees and rates into account. You can also start an online application on your own time and save it as you go.
> Compare the best mortgage deals available now
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.