Print

House price growth is fastest since early 2005

House price inflation continued to increase in August, but the rate increase will signal caution said Nationwide.  It was the third consecutive month that has seen an increase in annual house price inflation.

Hide table

Headlines	August 2006	July 2006
Monthly index * Q1 '93 = 100	331.9	329.4
Monthly change*	0.8%	0.8%
Annual change	6.6%	5.9%
* seasonally adjusted

Print Features Archive Show Full Table

Fionnuala Earley, Nationwide's group economist, said, "House prices are now 6.6% higher than at this time last year. This is the fastest annual rate of growth since April 2005 and almost three times faster than at this time last year. The underlying market remains fairly firm with prices increasing by 0.8% in August."

The typical house in the UK now costs £167,721. This is £10,412 higher than August 2005 - the equivalent of a rise of almost £30 per day.

The housing market is unlikely to slow as rapidly as in last rate rise cycle said the Nationwide report.

The rise in interest rates in August, together with the expectation of another rise before the end of the year, naturally leads to comparisons being drawn between now and the last cycle of interest rate rises. The five increases between November 2003 and August 2004 led to a rapid fall in house price inflation, from over 20% in July 2004, to 2.3% by the time rates were reduced again in August 2005.

Fionnuala Earley said: "While we expect base rates to reach 5% by the end of the year - above the peak of the last rising cycle - we do not expect the market to slow as sharply as before."

"There are three main reasons for this. First, current macroeconomic conditions suggest fewer increases in base rates; secondly, fixed mortgage rates have moved more gradually, and thirdly, demand, particularly from the investment sector, is likely to remain fairly supportive."

"The rise in rates will undoubtedly have sent a cautionary signal into the market, but inflationary pressures in the economy now are less certain than in the previous cycle."