UK house price growth edged up to a three-month high in October, but pressure on household budgets is weighing on the market according to Nationwide.
Annual growth in house prices picked up to 2.5% from 2.3% in September, as a shortage of homes on the market and low mortgage rates propped up prices, the lender said in its monthly report. Prices rose 0.2% over the month, taking the average price of a UK home in October to £211,085.
“Low mortgage rates and healthy rates of employment growth are providing some support for demand, but this is being partly offset by pressure on household incomes, which appears to be weighing on confidence,” said Robert Gardner, Nationwide’s chief economist. “The lack of homes on the market is providing support to house prices.”
Variable rate mortgage holders could be in store for a rise in monthly payments if the Bank of England raises interest rates on Thursday for the first time in more than a decade.
The Bank’s Monetary Policy Committee is expected to raise rates to 0.5% from a current all-time low of 0.25%, putting further pressure on household budgets that are already stretched as prices rise faster than wages.
Nationwide said earlier this week that a 0.25% interest rate rise would be passed on in full to its 600,000-plus variable-rate home loan customers.
However, Gardner said that the proportion of UK borrowers directly impacted by a rate rise would be smaller than in the past, because the share of outstanding mortgages on variable rates was at a record low of 40%, compared with a peak of 70% in 2001.
On an average mortgage, a 0.25-point increase in rates would have a modest impact for most borrowers on variable rates according to Nationwide, with monthly payments increasing by £15 to £665.
“That’s not to say that the rise will be welcome news for many borrowers,” Gardner said. “Household budgets are under pressure from the fact that wages have not been rising as fast as the cost of living. Indeed, in real terms – after adjusting for inflation – wage rates are still at levels prevailing in 2005.”
Economists at the forecasting group EY Item Club said UK house price growth was likely to remain subdued for the remainder of 2017, and rise by about 2%-3% in 2018.
Howard Archer, the group’s chief economic adviser, said the housing market was likely to remain challenging over the coming months against a backdrop of falling real wages and fragile consumer confidence.
“It is also very possible that a likely Bank of England interest rate hike on Thursday will weigh down on housing market activity,” Archer added. “While any increase in interest rates would be small and mortgage rates would still be at historically very low levels, the fact that it would be the first rise in interest rates since 2007 could have a significant effect on housing market psychology.”
UK house prices pick up but still under pressure, says Nationwide – The Guardian