UK house prices recorded their fifteenth successive monthly increase in July, the Nationwide has reported, although the pace of growth slowed.
The price of a typical home increased by just 0.1% over the month, while the annual rate of price growth moderated to 10.6% from 11.8% in June.
Nationwide said the slowdown was not entirely unexpected, given mounting evidence of a moderation in activity in recent months. Mortgage approvals declined by almost 20% between January and May, and there has also been some softening in forward looking indicators, such as new buyer enquiries.
Robert Gardner, Nationwide’s chief economist, said: “At least part of the slowdown in activity relates to the introduction of Mortgage Market Review measures. The modest rebound in mortgage approvals in June adds weight to the notion that the slowdown will prove temporary, though the underlying pace of demand remains unclear. With the labour market strengthening, mortgage rates expected to remain low and consumer confidence rising, activity is likely to recover in the months ahead.
“Over the longer term, the trajectory of house prices will remain crucially dependant on supply side developments. While there have been some encouraging signs that construction activity is picking up, the pace of home building continues to run far below most estimates of what would be required to keep up with household formation in the years ahead.
“A modest recovery in the number of housing transactions, a pick-up in house price growth and the introduction of higher stamp duty rates on more expensive properties have all contributed to a sharp increase in stamp duty revenues in recent quarters, the majority of which is paid on residential property transactions.
“Indeed, stamp duty revenues are near the all-time highs recorded in 2007/08, reaching over £10 billion in the twelve months to June 2014.
“Variation in house prices have a strong impact on how much stamp duty is paid across different regions of the UK, with some regions contributing a much greater share of the total stamp duty revenues than their share of housing transactions might suggest.
“We estimate that London contributed around 42% of the total stamp duty paid on residential properties in 2013/14, even though the capital only accounted for c.15% of house purchase transactions. This largely reflects the substantial (and growing) gap between house prices in the capital and the rest of the UK, where the typical London home now costs more than twice the national average.
“By contrast, the North West, where the price of a typical house is well below the national average, accounted for 3% of the total stamp duty paid, markedly less than its 10% share of property transactions.”
Hugo Thistlethwayte, managing director of Prime Purchase, the buying arm of Savills, said: “While house prices still edged up in July, it was at their slowest pace since April 2013, underlining the slowdown evidenced by other housing market data.
“However, what Nationwide says probably only applies to about 10 per cent of the UK property market because of the limited use of an average house-price figure. This slowdown doesn’t apply to certain markets. Cambridge and Oxford are booming and there are no signs of the property markets slowing there. In areas such as West London, the housing market may be more muted than it has been but we are still seeing price rises on top of price rises.
“The market is as near equilibrium now as it can be. A gently rising housing market is a very positive place.
“London doesn’t fit into the UK anymore, nor those towns outside the city that you can commute from. There isn’t a bubble but some areas are hot for a good reason – genuine supply and demand.
“The economy is improving and this will continue to support prices. Interest rates are still low; they may go higher but we are likely to stay in a low interest rate environment. However, there is a check on the market in the form of the new mortgage rules, with the stress testing that will now go on to ensure borrowers can afford them even when rates rise. Borrowers may want bigger loans but they won’t be able to get them.
“It remains the case that those who are lucky enough to be buying with equity have the best choice in the marketplace. The new mortgage rules will hamper those who need to borrow money and practically make them second-class citizens as far as vendors are concerned. If you need a mortgage you will be constrained by what you can pay and the length of time it will take.”