Weakening economy dents UK house prices

Nationwide has released its latest house price index. The results show that despite a strengthening labour market, UK house prices have experienced a minor drop in August.

House prices continue to weaken in the UK
Mounting pressure on household finances and a weakening in consumer confidence have resulted in a slight fall in UK house prices in August, according to the latest Nationwide index.

Housing prices drop despite strong labour market

Prices fell by 0.1 per cent over the month, the first decrease since May and a downward movement that pulled the annual rate of increase from July’s 2.9 per cent to 2.1 per cent. In August last year, the annual rate stood at 5.6 per cent.The average cost of a property across the country now stands at £210,495 and Nationwide said the latest slowdown was further evidence of a cooling market as the economy weakens.Robert Gardner, chief economist at Nationwide, said, “In some respects the slowdown in the housing market is surprising, given the ongoing strength of the labour market.“The economy created a healthy 125,000 jobs in the three months to June and the unemployment rate fell to 4.4 per cent – the lowest rate for over forty years. In addition, mortgage rates have remained close to all-time lows.“It may be that mounting pressure on household finances is exerting a drag. Wages have been failing to keep up with the cost of living in recent months and consumer sentiment has weakened.“Ultimately, housing market developments will depend on wider economic performance. The UK economy slowed noticeably in the first half of the year, and there has been little to suggest a significant rebound in the months ahead.“While measures of housing affordability are not particularly stretched at a UK level, pressures are evident in some regions – especially London and the south of England.”

Increase of interest rates by Bank of England could affect house prices

Nationwide is forecasting annual price growth of two per cent this year with constrained supply supporting prices. It said the stock of homes on estate agents’ books remained close to a 30-year low while the number of new homes coming on to the market remained small.Howard Archer, chief economic adviser to the EY Item Club, said, “The fundamentals for house-buyers are likely to remain weak over the coming months with consumers’ purchasing power continuing to be squeezed by inflation running higher than earnings growth.”
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He said recent speculation that the Bank of England may increase interest rates from the record low of 0.25 per cent over the coming year or so could also be impacting buyers.“While any increase in interest rates would be small and mortgage rates would still be at historically very low levels, the fact that it would be the first rise in interest rates since mid-2007 could have a significant effect on housing market psychology,” he said.Nationwide’s report also showed that stamp duty land tax revenues have reached all-time highs – at £12.8 billion in the year to the second quarter.For related news and features, visit our Residential Property section.Access hundreds of global services and suppliers in our Online DirectoryClick to get to the Relocate Global Online Directory  Get access to our free Global Mobility Toolkit Global Mobility Toolkit download factsheets resource centre

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