August's interest rate rise has done nothing to dampen house price inflation if the latest figures released by Nationwide Building Society are to be believed.
The lender says house prices increased by 1.3% in September up from 0.8% a month earlier, bringing the annual rate to 8.2%
Nationwide says the average house price has risen from £167,721 last month to £169,413 now and predicts a further interest rate rise in November as a result. The price of a typical house is now almost £13,000 more than at this time last year and the equivalent of a rise of more than £35 per day over the last 12 months.
Fionnuala Earley, group economist at Nationwide, says August’s interest rate hike did nothing to cool the rate of house price inflation with the annual rate of inflation growing at its faster than at any time since February 2005.
Earley, admits a weak patch this time last year, when prices fell by 0.2%, probably helps to exaggerate the annual increase, but the more recent quarter on quarter series still shows a clear pick up in price growth since July.
Added to this is the fact buyer interest remains strong with estate agents continuing to report a high number of enquiries. But fewer sellers willing to put their properties on the market is adding to already squeezed supply, which is also contributing to the increase in house prices.
Nationwide warns high prices and little room for price negotiation could mean many new enquiries come to nothing, but up until now new buyers have been both willing and the able to cope with affordability issues.
The market is also being aided by strong buy-to-let landlord demand. Nationwide says around two-thirds of existing landlords say have plans to extend their portfolios and many have access to finance from gearing their existing portfolios.
Existing homeowners are also managing with affordability concerns with Nationwide parents may be helping their children onto the property ladders by remortgaging themselves.
Earley says mortgage lending data suggests borrowers appear to increase their borrowing by around 10% when remortgaging.
She says based on a typical house purchase two years ago remortgaging now would release around £11,500 which, if used to help an average first-time buyer onto the housing ladder, would leave them only having to find a further £2,300 to fund a 10% deposit.
Earley says: “We expect interest rates to be increased again in November, but there is little chance that mortgage rates will increase to 7% as a result.
“However, increases in interest rates do affect expectations about future house price growth and hence house purchase decisions.
“Lower house price growth means less of a cushion for buyers, especially those on interest only loans, and will make them more reluctant to stretch themselves. This may signal that demand will now begin to cool, particularly as other costs such as utility bills increase sharply.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Matthew West on 020 7484 9893 or email [email protected].IFAonline
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