Annual UK house price growth rose slightly to 1.6% in August, although economic uncertainty and borrowing costs continued to restrain the market.
House prices increased by a seasonally adjusted 0.2% month on month, reversing a revised 0.1% decline in July, according to the latest Nationwide House Price Index.
The average price, which is not seasonally adjusted, fell from £276,581 in July to £275,465 in August. Annual growth was up from 1.4% to 1.6%.
Robert Gardner, chief economist at Nationwide, said: “UK annual house price growth was little changed in August at 1.6%, compared with 1.4% in July. Prices were up 0.2% in month-on-month terms, after taking account of seasonal factors.
“Market activity and house prices have remained subdued in recent months, in part reflecting the uncertain economic backdrop. Geopolitical tensions remain high, with the conflict in the Middle East exerting upward pressure on energy prices and market interest rates.
“Market expectations of the future path of Bank Rate have been volatile. While the latest energy price shock poses inflation risks, there have been encouraging signs that it is not feeding through to underlying price pressures.
“Indeed, private sector wage growth has eased further in recent months, which should give policymakers breathing space to assess the extent to which tighter policy is necessary to ensure inflation returns sustainably to target.
“Underlying affordability is improving, as house price growth remains well below earnings growth. although some of these gains have been offset by higher mortgage rates.
“Nevertheless, this suggests that activity should regain momentum in the quarters ahead providing the energy shock wanes and confidence returns, especially if market interest rates fall back towards pre-conflict levels.”
BORROWING COSTS WEIGH ON CONFIDENCE
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Flat monthly house prices indicate that those focused enough to buy over the summer months were not willing or perhaps able to pay over-the-odds but took advantage of the buyers’ market and negotiated accordingly.
“Lenders mostly continue to trim their mortgage rates, while the Bank of England’s steady approach to base rate is conveying calm after a period of Swap rate volatility.
“Borrowers are taking nothing for granted though as the continued high cost of living strains affordability. Many are taking the sensible approach of locking into mortgage rates several months before they need them for peace of mind.”
Ian Futcher, financial planner at Quilter, said: “According to Nationwide, UK house prices rose marginally by 0.2% in August, while annual growth increased to 1.6%, taking the average property price to £275,465.
“The housing market remains caught between resilient demand and uncertainty over where borrowing costs go next. While buyers have become more accustomed to a higher interest rate environment, many are still reluctant to make major financial commitments when the outlook continues to shift.
“Over recent months, expectations for interest rates have been driven by the stop-start nature of the conflict in the Middle East. Whenever tensions appear to ease, hopes of lower borrowing costs begin to build.
“However, as concerns over energy prices and inflation resurface, markets quickly start questioning whether rates may need to remain higher for longer.
“That leaves the housing market in something of a holding pattern ahead of the Bank of England’s next interest rate decision on 17 September. While a hold remains the most likely outcome, it is becoming increasingly difficult to call with confidence.
“Markets are still pricing in the possibility of one further rate rise this year, while others argue policymakers may wait until after the Budget before acting so they can assess whether any fiscal measures help bring inflation under control or add to inflationary pressures instead.
“For borrowers, the key message is that rates may not have peaked. Many had hoped the conversation would be focused on when cuts might arrive, but there remains a realistic possibility that borrowing costs move higher before they move lower.
“Until that uncertainty lifts, buyer confidence is likely to remain subdued.
“Ultimately, demand for homeownership remains strong, but affordability and interest rate expectations will continue to dictate the pace of the market. Greater confidence that borrowing costs are on a stable path would provide a meaningful boost to activity, but for now caution continues to prevail.”
BUYERS REMAIN PRICE-SENSITIVE
Jeremy Leaf, north London estate agent and former RICS residential chairman, said: “Although prices are still fairly flat – up a bit, down a bit – that’s probably a good result as far as assessing current market health is concerned.
“Even more so as this data from the country’s largest building society is linked to customer mortgage approvals meaning these figures represent an albeit modest vote of confidence in the future.
“Continuing price sensitivity prompted particularly by mortgage rate and affordability concerns as well as the likelihood of property tax rises in the Budget have been playing on buyers’ minds.
“In our offices, we’re finding the sellers concentrating on the difference between what they’re receiving and what they’re having to pay rather than asking price – bearing in mind four out of five are buyers – are more likely to move, though less quickly as there’s so much choice – and often only after serious negotiations.”
