House prices in the UK have climbed 11% over the past year, according to the Nationwide Building Society, defying the growing cost of living crisis. The average property now costs £271,209, with July's annual increase slightly ahead of June's 10.7% rise. However, month-on-month growth was just 0.1%, indicating a potential slowdown.
Robert Gardner, Nationwide's chief economist, said the housing market has retained 'a surprising degree of momentum' but noted 'tentative signs of a slowdown in activity'. He attributed continued demand to strong labour market conditions, with unemployment near 50-year lows and job vacancies close to record highs, alongside limited housing stock.
The Bank of England is expected to raise interest rates by up to 0.5% on Thursday, which Gardner said could 'exert a cooling impact on the market'. He added that rising inflation, set to reach double digits by year-end, will intensify pressure on household budgets and slow the market in coming quarters.
First-time buyer mortgage completions remain 5% above pre-pandemic levels, but Mark Harris of SPF Private Clients noted this likely reflects 'significant financial input from the Bank of Mum and Dad' as deposit levels rise. Nicholas Finn of Garrington Property Finders described the market as 'fuelled by people's desperation to find a home before interest rates rise further'.
Analysts warned of further challenges. Alice Haine of Bestinvest predicted a 'dampening effect' from Thursday's expected rate rise to 1.75%, while Gabriella Dickens of Pantheon Macroeconomics noted that two-year fixed-rate mortgages have already risen to 2.88% from 1.57% since December. Andrew Montlake of Coreco cautioned that a recession could hit the market, but limited supply may cushion price falls.
