UK house prices just don't know when to quit

Though they do appear to be running out of breath. UK house prices posted a small rise last month, the twelfth in a row, but the rate of increase has slowed down. July's figures from Nationwide.

Annual house price growth remained in double digits last month. The small monthly increase of 0.1% follows June's 0.2%. Mortgage approvals are down for the fifth consecutive month. Together, they suggest that the much anticipated slowdown is under way.

Nationwide's figures for July

.

July 22

June 22

Monthly Change

+0.1%

+0.2%

Annual Change

+11.0%

+10.7%.

Average Price

Not seasonally adjusted

£271,209

£271,613

Robert Gardner, Chief Economist, Nationwide

"The housing market has retained a surprising degree of momentum given the mounting pressure on household budgets from high inflation, which has driven consumer confidence to all-time lows. While there are tentative signs of a slowdown in activity, with a dip in the number of mortgage approvals for house purchase in June, this has yet to feed through to price growth.

"Demand continues to be supported by strong labour market conditions, where the unemployment rate remains near 50-year lows and with the number of job vacancies close to record highs. At the same time, the limited stock of homes on the market has helped keep upward pressure on house prices."

Over the last two years, stamp duty holidays, the strong desire to move home and persistently low interest rates combined to create the perfect conditions for a house price boom. The tax breaks are gone and the other two are unwinding. That does not mean, however, that price falls are likely.

Martin Beck, chief economic advisor to EY Item Club, said "it's hard to see how house prices will see anything but a significant slowdown - but this would be a slowdown, not a contraction."

Buy to let bucks the trend

One group defying the slowdown in activity is buy to let investors. According to Nationwide, "Buy to let purchases involving a mortgage also remain higher than pre-pandemic levels. Sentiment is likely buoyed by the fact that rental demand remains strong, with upward pressure on rents, which may encourage landlords to enter the market, particularly if they view property as a hedge against inflation."

This is supported by data from Legal & General, which showed that mortgage enquiries from experienced landlords have spiked by 21%.