The UK housing market remained buoyant in July with price growth accelerating to an annual rate of 11%, according to the country’s biggest building society.
The average price of a home was £271,209 last month, up 0.1% from June when taking account of seasonal effects, and the 12th monthly rise in a row, said Nationwide building society. This took the annual change to 11% from 10.7%.
The market has been surprisingly strong throughout the Covid pandemic and despite the worsening cost of living crisis. It has been boosted by a strong jobs market, a persistent shortage of properties on the market and a “race for space” amid the rise in home working.
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“The housing market has retained a surprising degree of momentum given the mounting pressures on household budgets from high inflation, which has already driven consumer confidence to all-time lows,” the Nationwide chief economist, Robert Gardner, said.
“While there are tentative signs of a slowdown in activity, with a dip in the number of mortgage approvals for house purchases in June, this has yet to feed through to price growth.”
Gardner said demand continued to be supported by strong labour market conditions, in which the unemployment rate remains near 50-year lows and the number of job vacancies is close to record highs. “At the same time, the limited stock of homes on the market has helped keep upward pressure on house prices,” he added.
The EY Item Club forecasting group noted that cost of living pressures are being felt disproportionately by low-income households, primarily those in rented accommodation.
Nicholas Finn, the managing director of Garrington Property Finders, said: “While many estate agents remain busy, buyers’ motivation is changing. Where previously price growth was fuelled by a market brimming with confidence, today’s market is being fuelled by people’s desperation to find a home before interest rates rise further and the cost of living crisis bites deeper.”
Nationwide and other experts expect the market to slow, however, as pressure on household budgets intensifies in the coming quarters, and inflation is set to reach double digits this autumn. Further interest rate increases from the Bank of England will also cool the market if they feed through to mortgage rates, with the BoE expected to announce a further rise on Thursday.
Mortgage completions by first-time buyers have remained resilient, and are now 5% above pre-pandemic levels, even though house price growth has continued to outpace wages by a wide margin, increasing the deposit hurdle, and, together with higher interest rates, has pushed up mortgage repayments relative to incomes, Gardner said.
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Cash transactions make up just over a third of all deals, at 35%, partly reflecting an ageing population in which more people own their homes outright. But properties bought for investment, such as holiday homes or buy-to-let flats, are also an important element of the cash market.
Buy-to-let purchases involving a mortgage also remain higher than pre-pandemic levels. “Sentiment is likely buoyed up by the fact that rental demand remains strong, with upward pressure on rents, which may be encouraging landlords to enter the market, particularly if they view property as a hedge against inflation,” Gardner said.
According to the property website Rightmove, rents are at record levels. Average asking rents outside London hit another new record of £1,126 a month in the second quarter.
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