House price inflation has slowed to its lowest rate since 1996 according to the latest figures from Nationwide.
The mortgage lender says house prices increased by 0.2% in July reversing the previous months fall, with the annual rate of inflation standing at 2.6% in July. This compares to a rate of 4.1% in June and more than 20% in July 2004 says Nationwide. The average house price according to the latest figures is now £158,348.
Fionnuala Earley, group economist at Nationwide, says July’s figures suggest a slight improvement in the housing market with the number of approves for house purchase picking up steadily since the start of the year, reaching a seasonally adjusted figure of 96,000 in May up from 83,000 in January. Earley claims there are indications of another small increase in the official data for June as well, as estate agents are reporting an increase in buyer activity and some softening on the part of homeowners with respect to expectations on sales prices.
Nationwide also upped the pressure on the Bank of England despite majority opinion believing the monetary policy committee will lower interest rates when it meets next week.
Earley says “It now seems almost certain that there will be a cut in interest rates at the next meeting on 4 August. The question is what will happen after that? On the upside the global economy, while weaker than last year, is not collapsing and the Chancellor’s decision to extend the economic cycle will buy more time before taxes have to increase. On the downside, the underlying picture could be more downbeat than previously thought and this in turn could impact on the labour market more swiftly.”
"A rate cut would provide some stimulus to the housing market, through its impact on affordability. The annual rate of house price growth is now below wage growth for the first time since May 1996. This, in combination with the effect of lower interest rates on mortgage payments, will help to improve affordability. But a fall in rates is unlikely to cause acceleration in the rate of house price growth at this point in the cycle, particularly if labour market conditions worsen. The actual impact will depend on what happens next in terms of general economic sentiment,” she adds.
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