House prices rose by 0.6% in October, to an average of £196,807, according to the Britain’s largest building society.
After falling to a two-year low of 3.2% in August, the annual rate of growth has bounced back slightly to 3.9%, but it remains well below the recent peak of 11.8%, hit in June 2014, Nationwide’s figures showed.
The society’s chief economist, Robert Gardner, said: “Over the past five months, annual price growth has remained in a fairly narrow range between 3% and 4%, broadly consistent with earnings growth over the longer term. While this bodes well for a sustainable increase in housing market activity, much will depend on whether building activity can keep pace with increasing demand.”
After a buoyant start to 2014, the housing market slowed in the second part of the year, and this fall in activity continued into the first half of 2015.
Recent figures show an increase in the number of buyers taking out loans and registering interest with estate agents, although many firms report a lack of property for them to buy.
Nationwide’s figures, based on loans approved by the society over the month, show that over the past three months prices have risen by 1.1%, up from a growth of 0.8% during the previous three months.
Howard Archer, chief UK economist at IHS Global Insight, said the market was supported by stronger earnings growth, high employment, elevated consumer confidence and low mortgage interest rates.
“We expect house prices to see solid increases over the coming months amid firm activity,” he said. “Given that house prices were soft in the latter months of 2014, this is likely to see annual house price inflation on the Nationwide’s measure move higher over the coming months.”
A mortgage price war over recent months was helping buyers by keeping down the monthly cost of owning a home, Gardner said. Although average prices are £10,763 higher than their previous peak, reached during the housing boom of the early 2000s, the amount of money needed each month to repay a home loan has not increased.
For first-time buyers, Nationwide’s figures show that mortgage payments make up just under 35% of take-home pay, markedly less than the 52% reached in 2007.
Gardner said: “Historically low interest rates have helped to offset the negative impact of rising house prices on affordability. Indeed, even though house prices are at an all-time high, the cost of servicing a typical mortgage is still close to the long-term average as a share of take-home pay.”
The difficulty of getting a loan was underlined by figures released by the society at the end of September, which showed that the cost of a first-time buyer property in London had hit 9.6 times average incomes.
Separate data from the Bank of England showed a slowdown in mortgage approvals last month. The number of loans approved for house purchase fell for the first time since May, dropping to 68,874 in September from 70,664 in August. The dip confounded expectations for a rise to 72,450 in a Reuters poll of economists.
The figures echoed data from the British Bankers’ Association on Monday also showing a drop in mortgage approvals, with the lack of homes on the market being blamed for the fall.
Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics said the “big picture is that overall credit flows are improving, albeit slowly.”
The BoE figures show mortgage lending rose £3.6bn on the month in September in the biggest net increase since early 2008.
“The drop in mortgage approvals is neither a shock nor the start of a trend. The BBA’s narrower measure of approvals pointed to a September fall earlier this week, while lenders’ intention to increase the supply of secured credit and strengthening wage growth point to an imminent revival,” added Tombs.
Gardner said in recent years the popularity of fixed-rate mortgages meant that the proportion of outstanding home loans that were on variable rates – and so susceptible to interest rate rises – had declined steadily. While in mid-2012, almost 70% of outstanding mortgages were on variable rates, the figure had fallen to about half by June 2015.
“This should help to insulate many households from the impact of higher interest rates, though the proportion on variable rates is still higher than the 38% prevailing in 2007,” he said. “It is also important to note that the majority of recent fixes are for relatively short time periods – 65% were for two years and 30% for five years.”
However, he said the housing market should be able to cope with any rate rises in the coming year, “provided the increase is modest and the economy and the labour market remains in good shape”.
