UK house prices rise at annual rate of 10% despite steeper mortgage costs

UK house prices rose at a double-digit rate for the 10th consecutive month in August, as a lack of supply supported valuations despite mortgage rates increasing and an intensifying cost of living crisis.

House prices rose at an annual rate of 10 per cent last month, down from 11 per cent in the previous month but marking an uninterrupted double-digit expansion since October, according to the mortgage provider Nationwide.

The annual growth rate was much faster than the 8.9 per cent forecast by economists polled by Reuters.

Nationwide’s chief economist Robert Gardner said the slowdown had to date been “modest” and, combined with a shortage of stock on the market, meant that price growth had “remained firm”.

Prices were up 0.8 per cent between July and August, defying expectations that they would come close to stagnating as a result of soaring inflation, which is hitting households’ finances and consumer confidence.

Instead, the latest rise took the average house price to a new high of £273,751, £50,000 more than two years ago.

Andrew Wishart, property economist at the consultancy Capital Economics, said the figures suggested that house prices “managed to retain some positive momentum despite growing pressure on households’ finances”.

Tomer Aboody, director of property lender MT Finance, said that “with less stock on the market . . . buyers have little choice and are therefore outbidding to secure a home”.

This is supported by separate data from the Royal Institution of Chartered Surveyors, which showed the average stock of properties per estate agent branch was down to 35 in July, the lowest level since records began in 1978.

But with mortgage rates rising rapidly and the cost of living crisis deepening, many expect the housing market to cool in the coming months.

Tom Bill, head of UK residential research at property agent Knight Frank, said the housing market was “playing a slow game of catch-up with the economy”, adding: “As supply continues to build this autumn and mortgage rates rise, demand will soften and annual price growth will fall.”

Data published by the Bank of England this week showed that the interest on newly drawn mortgages increased by 18 basis points 2.33 per cent from June to July, the highest level in six years.

It also revealed that mortgage approvals fell to below pre-pandemic levels and well below the peak during the pandemic-induced boom, when record-low interest rates and stronger demand boosted transactions and prices.

“We expect the market to slow further as pressure on household budgets intensifies in the coming quarters,” said Nationwide’s Gardner.

The consultancy Oxford Economics expects UK house prices to start contracting from the middle of 2023 after a sharp slowdown this year.

Gabriella Dickens, at the consultancy Pantheon Macroeconomics, said the rise in mortgage rates had been “too severe at a time when real incomes are falling”, adding: “We struggle to see a scenario in which house prices do not fall outright in the second half of the year.”