House prices in the UK returned to growth last month, as the market recovered from a dip in June after the end of a tax break on stamp duty.
The average price of a home rose 0.6% in July to £272,664, following the biggest month-on-month fall in more than two years in June, according to Nationwide.
Britain’s biggest building society said the annual rate of house price growth also improved to 2.4%, up from 2.1% in June, and purchase activity remains buoyant with 64,200 mortgages approved in that month.
Nationwide also noted that buying a property is now the most affordable it has been in more than a decade, although it is still almost six times the average UK wage.
“The price of a typical UK home is about 5.75 times average income, the lowest this ratio has been for over a decade,” said Robert Gardner, Nationwide’s chief economist. “This is helping to ease deposit constraints for potential buyers, as has an improvement in the availability of higher loan-to-value mortgages.”
However, Nationwide said borrowing costs remain high, with the interest rate on a typical five-year fixed-rate mortgage for a buyer with a 25% deposit more than three times the level seen in autumn 2021.
“On the ground, transactions are holding together relatively well,” said the London estate agent Jeremy Leaf. “As a result, looking forward we expect to see a modest improvement all round, particularly if interest rates are reduced in the next month or so as widely expected, despite lingering concerns about the economy.”
Temporary stamp duty cuts in England and Northern Ireland expired in April, adding thousands of pounds to the cost of many transactions.
The property sector is hopeful of a further boost on 7 August when the Bank of England’s monetary policy committee (MPC) holds its next meeting to decide on whether to reduce the UK base rate, which stands at 4.25% and is used to set mortgage interest rates.
Financial markets expect the MPC to reduce the base rate to 4% next week and again to 3.75% before the end of the year.
Last month Andrew Bailey, the governor of the Bank of England, said that the “path for interest rates is downward”.
However, UK inflation rose unexpectedly to 3.6% in June, well above the Bank’s 2% target. City economists and the central bank had expected it to remain the same as May’s reading of 3.4%, and the uptick in inflation may make the MPC more cautious about cutting interest rates.
“All eyes will be on the Bank of England next week and what it decides to do with interest rates,” said Karen Noye, a mortgage expert at Quilter. “It was thought that a rate cut was fairly certain, but recent inflation data coming in higher than expected may just temper things slightly and force buyers to wait. Should the Bank of England follow through with a rate cut, however, that will help support the buyers.”
