House price inflation grew by 0.7% in October taking the annual rate of inflation down slightly from 8.2% in September to 8% now, new figures from Nationwide reveal.
The price of the average property has risen only slightly as a result from £169,413 last month to £169,623 now. But overall house prices have risen £12,500 in the last twelve months.
While the rate of inflation fell back this month to 0.7% from 1.3% in September the quarterly growth rate increased to 2.6% representing the fastest pace since September 2004.
Fionnuala Earley, Nationwide's group economist, says recent housing market indicators have been firm while the latest approvals data from the Bank of England shows the August rate rise did little to curb demand for property.
“The number of house purchase approvals increased to 126,000 in September, the highest rate of monthly activity since February 2004 when house prices were increasing at an annual rate of 17.1%. However, September also saw a big fall in the balance of estate agents reporting an increase in new buyer enquiries and net sales. While the relationship between these and house purchase approvals is far from perfect, it could suggest that we will see some slowing in approvals in the next few months,” Earley says.
She adds worsening affordability and expected increases in interest rates will affect both homebuyers and property investors. Investors see property as simply an asset in the same way as equities or bonds and the investment decision will depend on the relative returns. So higher prices and interest rates reduce yields and annual net yields are already negative in some parts of the country. With property prices at an all time high, some investors may feel the potential for future growth in the stock market could be better than for the housing market.“Rising interest rates, worsening affordability, falling yields on housing investments and lower expectations of future house price growth are all factors that we expect will slow the market in the coming months. However the momentum that has built up in the market means that we can still expect to see relatively strong annual rates of growth in the short term,” Earley adds.
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Appointed on 19 September