Residential property prices in the UK are continuing to rise with the latest increase showing the fastest pace since 2006.
Prices rose 1.6% in August as low interest rates and lack of supply had a positive effect, according to the Nationwide’s latest monthly index. But lending is still tight and it is exceptionally low interest rates, at 0.5% since March, that are helping the property market at present.
‘Even though house prices remain high relative to earnings, the fall in interest rates has improved the affordability of mortgages for those looking to buy a home. Also the fall in debt servicing costs has meant that fewer homeowners are under immediate financial pressure to sell,’ explained Martin Gahbauer, Nationwide’s chief economist.
The August increase in house prices was the fourth in succession, leaving them 3.2% higher than at the end of 2008. In the three months through August, they rose an average of 3.3 percent from the previous period, the most since February 2007.
But property prices are still down 14.4% from their peak in October 2007, the mortgage lender said. There is also the question of sustainability. Price increases may become difficult to sustain if efforts to spur economic growth are successful and lead the Bank of England to raise interest rates in the future, Nationwide said.
‘At the moment, a rise in interest rates is probably still some way off. However, the eventual exit from exceptionally loose monetary policy could make the recovery in the housing market bumpier than some might expect after the last few months of price increases,’ Gahbauer warned.