Nationwide House Price Index: House price growth remains resilient to the cost-of-living crunch

Alice Haine, Personal Finance Analyst at Bestinvest, the DIY investment platform and coaching service, commented:

“The housing market is continuing to defy the wider economic gloom affecting the UK economy according to the latest Nationwide House Price Index. The slight increase of 11% in annual house price growth goes against the mood in the rest of the economy as households contend with runaway inflation, rising interest rates and higher energy bills.

“While the 0.1% uplift in monthly growth marks the 12^th successive monthly increase, the figure is modest when compared to some of the larger monthly jumps that became a feature of the pandemic.

“This adds to the tentative signs that Britain’s housing market is starting to cool, indicating that the volley of blows hitting the wider economy might finally be taking a swipe at house prices.

“Perhaps the biggest signal of the slowdown to come was seen in the Bank of England’s latest credit data which found mortgage approvals fell by more than expected in June to 63,700 from 65,700 in May.

“With consumers taking out an extra £1.8 billion in unsecured debt, with £1 billion spent on credit cards alone, it’s clear the cost-of-living crisis is hitting households hard with struggling families forced to borrow to meet their monthly financial obligations.

"Despite five consecutive interest rate rises since December last year, house price activity has remained relatively resilient to the economic woes clouding the rest of the economy. But with the BoE widely expected to hike interest rates by 0.5% this week, this should have a dampening effect on the market.

“Add in the barrage of challenges to come – from the surge in energy prices in October, when the energy watchdog increases the cap on bills, to runaway inflation continuing to outstrip wage growth - and the pressure on household finances will only intensify, potentially placing even more pressure on the property sector.

“Whether this will lead to a decline in prices is unlikely as the low supply of homes for sale is expected to underpin the market for some time yet. But the UK property market has a habit of defying expectations as the record highs achieved during the pandemic highlight.

“As the cost-of-living crisis tightens its grip on household expenditure, affordability will become the biggest hurdle going forward, particularly for first-time buyers contending with both high prices and higher interest rates.

“While some might delay their purchases to see if the market softens in the months ahead to grant them more bargaining power, existing homeowners considering a move to a bigger pad might pause their plans and focus on renovation instead. This avoids taking on a bigger mortgage at a time when rates are rising and there are more concerning financial challenges, such as higher energy bills, to consider.

“The warning for all in this cost-of-living squeeze is to avoid borrowing the maximum possible, even if your broker can make it happen. Yes, a mortgage repayment can work out cheaper than renting, but if things go wrong the buck stops with you. Property owners must cover all the costs that come with running a home such as maintenance and repairs, council tax, utility bills and insurance costs.

“It is also wise to sign up for a longer-term fixed rate mortgage to prevent having to take out a new product when rates are even higher. The last thing any buyer wants in these constrained times is to risk falling into default because you cannot keep up with mortgage payments.”