Nationwide House Price Index ticks up – but economists urge caution | City A.M.

Annual house price growth has climbed ahead of a possible rate rise this month, according to the Nationwide House Price Index.

Prices in July rose by an average of 2.5 per cent, up from two per cent in June. It comes just a day before the Bank of England’s monetary policy committee (MPC) meets to discuss a potential rate rise, with economists and investors forecasting that rates may rise from 0.5 per cent to 0.75 per cent.

But despite the uptick Robert Gardner, Nationwide’s chief economist, flagged that annual house price growth was still within a “fairly narrow range” of between two and three per cent, “suggesting little change in the balance between demand and supply in the market”.

Overall, the group continues to expect house prices to rise by around one per cent over the course of 2018.

He added: “Looking further ahead, much will depend on how broader economic conditions evolve, especially in the labour market, but also with respect to interest rates.

“Subdued economic activity and ongoing pressure on household budgets is likely to continue to exert a modest drag on housing market activity and house price growth this year, though borrowing costs are likely to remain low.”

He added that any mortgage rate increase would have a “modest” impact – as long as the economy did not further weaken.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, agreed: “The slow growth in prices, which we have seen over the past few months, is continuing. Supply and demand remain broadly in line and the shortage of stock, as well as low interest and jobless rates, prevent a larger fall.”

But he was gloomy about the impact “even a modest increase” of interest rates would have on the market.

“The direction of travel always seems to have an adverse impact on confidence and is likely to reduce low levels of transactions even further,” he added.

This was echoed by Jonathan Hopper, managing director of Garrington Property Finders, who described today’s figures as “two steps forward, one step back”.

“It’s tempting to see such a meandering market as the fruit of a cautious consensus. Instead it’s a byproduct of the collision of three conflicting forces; pent-up demand, low supply and patchy confidence,” he said.

“With activity levels slowly picking up, the rising tension is creating some big regional anomalies – making the national average as misleading as it is insipid. The future course of the market is balanced on a knife edge.”