This builds on 1.5% annual growth in June and means that the average house price stood at £266,334 in July, according to Nationwide’s House Price Index.
The monthly change in house prices was estimated at 0.3% in July, a rise from 0.2% in June.
Robert Gardner, Nationwide’s chief economist, said that despite the uptick in house prices in July, they were still 2.8% below the “all-time highs” recorded in the summer of 2022.
He continued: “Housing market activity has been holding relatively steady in recent months, with the number of mortgages approved for house purchase at around 60,000 per month. While this is still c.10% below the level prevailing before the pandemic struck, it is still a respectable pace given the higher interest rate environment.”
Gardner said that, for instance, for borrowers with a 25% deposit, the rate on a five-year fixed deal is around 4.6%, which is more than double the 1.9% average recorded in 2019.
“As a result, affordability is still stretched for many prospective buyers. Indeed, for an average earner buying a typical first-time buyer property, the monthly mortgage payment is equivalent to around 37% of take-home pay, well above the 28% prevailing pre-Covid and the long-run average of c.30%,” he said.
Gardner said that investors expect the base rate to be lowered “modestly” in the years ahead, which could bring down borrowing costs, but the impact would be “fairly modest” as swap rates “already embody expectations that interest rates will decline in the years ahead”.
“As a result, affordability is likely to improve only gradually through a combination of wage growth outpacing house price growth (which is expected to remain fairly flat), with some support from modestly lower borrowing costs,” he said.
Housing market ‘continues to be remarkably robust’
Mark Harris, chief executive of mortgage broker SPF Private Clients, said that the housing market “continues to be remarkably robust”, but a base rate cut would “really boost transaction volumes”.
He explained: “With inflation hitting the 2% target and the Fed signalling that it will cut rates in September if inflation continues to ease, surely it is time for the Bank of England to follow suit?
“That first reduction, when it comes, will send an important message to borrowers, enabling them to plan their moves with more confidence. In many ways, it will influence homebuyer decision-making far more than the election outcome, which most had expected.
“Lenders continue to trim mortgage rates as they compete for business and swaps continue to fall. Borrowers will be hoping this trend continues into the autumn.”
Chris Baguley, a director at property finance specialist Together, added that house prices were “reaching new highs, reflecting strong demand and resilience in the market”.
“Hearing from the deputy Prime Minister on Tuesday, it’s clear the new Government is keen to get spades in the ground as fast as possible to deliver the quality, affordable accommodation needed to meet this demand.
“However, whether Labour will be able to achieve ambitious housebuilding targets of 370,000 new homes a year – including across green and grey belt areas – may continue to be an area of contention,” he noted.
Baguley agreed that a base rate cut, which is expected in the next couple of months, could “encourage more buyers as borrowing costs start to fall”.
He continued: “That said, there will still be some who prefer to remain cautious in the short term and wait for the outcome of the Autumn Budget first.
“However, with the Bank of England’s interest rate decision later today, many will be planning to realise their property ambitions later this year. Those eager to get on the ladder may want to consider exploring bridging finance, which allows borrowers to access fast, flexible short-term loans to seize opportunities and re-finance to a longer term mortgage, at a lower rate, later down the line.”
This article was first published on Your Mortgage‘s sister site, Mortgage Solutions. Read: UK house prices edge up 2.1% in July – Nationwide
