House prices defy forecasts to continue double-digit increase, according to Nationwide

The housing market continues to defy the wider economic gloom, with prices rising for the thirteenth month in a row last month.

In the face of rising mortgage rates, a cost of living crisis and tumbling consumer confidence, many market commentators have been forecasting a slide in house prices, which is still yet to come.

In August UK house prices increased by an average of 0.8 per cent on the previous month, according to the latest Nationwide house price index. That compares with a month-on-month rise of 0.2 per cent in July.

It means that the average house price now stands at £273,751, a new high. Since the pandemic erupted house prices across the country have risen by close to 25 per cent. Back in March 2020 the average value of a UK home was less than £220,000.

The annual rate of inflation slowed once again in August, reflecting the speed at which prices rose last summer as the ending of the stamp duty holiday neared, but it remains in double digits. Compared with this time a year ago, house prices are 10 per cent higher, although that is down from 11 per cent in July and well below the peak of 14.3 per cent reached in March.

“While annual house price growth softened in August, it remained in double digits for the tenth month in a row,” Robert Gardner, Nationwide’s chief economist, said. “There are signs that the housing market is losing some momentum, with surveyors reporting fewer new-buyer inquiries in recent months and the number of mortgage approvals for house purchases falling below pre-pandemic levels. However, the slowdown to date has been modest, and combined with a shortage of stock on the market, has meant that price growth has remained firm.”

The housing market has been strong ever since the first lockdown. Estate agents were not sure how people would react to the pandemic but they have enjoyed one of the busiest periods the industry has seen in well over a decade.

The lockdowns forced a once-in-a-generation rethink in how and where people wanted to live and trends such as the “race for space” are still playing out even now.

Nationwide expects the housing market to slow over the coming quarters as stubbornly high inflation puts pressure on households’ spending and saving power. In an attempt to bring inflation down the Bank of England is likely to further increase interest rates, which will be felt by homeowners in the form of more expensive mortgages.

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

Homes in the UK most commonly have an Energy Performance Certificate (EPC) rating of D and Nationwide has calculated that the average energy cost to heat and run those houses will increase by £1,250 a year from October, when the recently announced increase in the energy price cap comes into force. That includes the £400 government discount.

Bills for E-rated properties are likely to go up by more than £1,700 and those living in the least-efficient homes, rated F or G, face a £2,700 rise. The cost to run a house between an A and C rating will rise by close to £1,000, Nationwide estimates.

It expects that the government will have to step in and offer more support, which it hopes will take the form of incentivising homeowners to improve the efficiency of their houses. “Incentivising improvement measures, such as loft and cavity wall insulation and solar PV installations, could help limit bill increases and assist the UK towards its carbon emissions targets,” Gardner said.