“Firm” growth in UK house prices

31 August 2006

Annual house price growth increased this month, with the housing market remaining “firm”, according to the Nationwide.

The building society’s monthly housing survey found that prices rose by 0.8% during the month – the same as in July – lifting the annual rate of house price growth to 6.6%. This was the fastest yearly growth rate since April 2005. Nationwide’s survey also showed that the average property in the UK now costs £167,721. A year ago, seasonally-adjusted house prices were £157,310.

This is the first Nationwide report since the Bank of England raised interest rates unexpectedly earlier this month. The Bank’s rate-monitoring committee, the MPC, raised the base rate to 4.75% from 4.5% on 4 August.

Fionnuala Earley, who’s Nationwide’s group economist, said: “While the MPC is now clearly in hawkish mode, uncertainties about oil prices and the amount of slack in the economy mean that the inflation outlook is less definite and fewer rate rises are expected.”

She added that they expect rates to increase to 5% by the end of the year. Despite this, Nationwide doesn’t expect the housing market to slow as sharply as it did during the period November 2003 to August 2004, when five interest rate rises led to a rapid fall in house price inflation.