House prices continue to rise according to the UK’s largest building society.
Spurred on by the Government’s Funding for Lending and Help to Buy schemes, the rate of growth in house prices has risen sharply over the past few months and today’s figures from the Nationwide confirm the trend is continuing.
The figures show house prices in the UK rose by 0.6% in August and were 3.5% higher than this time last year, taking the value of the average home to £170,514.
Earlier this week, Land Registry figures showed prices rose in July and experts will be keen to see whether data from the Halifax echoes the figures from the Nationwide.
House price rises
Experts believe there are a number of factors helping to push house prices higher:
- The Funding for Lending Scheme has helped to reduce interest rates
- Whilst the Help to Buy Scheme has helped to make mortgages more available to people who previously found it hard to get finance
- As the economy recovers consumer confidence is slowly returning
- Unemployment is falling and there is evidence people are feeling more secure in their jobs
- House prices are rising, which makes it easier for people to move as it helps to increase the level of equity in their home
Despite the rise in house prices, Robert Gardener, Chief Economist at the Nationwide, struck a note of caution: “While there have been encouraging signs that house building is starting to recover, construction is still running well below what is likely to be required to keep up with demand. New housing starts in England were up 33% in Q2 compared to the same period of 2012, but this is still 36% below the levels prevailing in 2007, which were already below that required to keep pace with household formation.”
Gardener continued: “The risk is that if demand continues to run ahead of supply affordability may become stretched. While house prices are still elevated compared with incomes, affordability is being supported by the ultra low level of interest rates. A typical mortgage payment for a first time buyer is currently equal to around 29% of disposable income, in line with the long term average.”
“Recent guidance from the Bank of England’s Monetary Policy Committee (MPC), that it intends to keep interest rates on hold at least until the unemployment rate reaches 7%, may also help support confidence amongst potential buyers. However, despite this guidance, there is still considerable uncertainty as to the future path of Bank Rate. The Bank of England’s central forecast is that the unemployment rate will not reach the threshold level of 7%, but financial market indicators continue to point to a first rate hike in mid-2015.” (Source: Nationwide)