UK house prices increased by 0.8% in August taking the average price of a home to £189,306, according to the latest index from the Nationwide Building Society.
The index also shows that year on year price growth has increased from 10.6% to 11% compared with July and prices have now increased for 16 months in a row.
‘While this is still below the 11.8% recorded in June, house price growth continues to outpace earnings by a wide margin, with average wage growth running at less than 1% in recent months,’ said Robert Gardner, Nationwide’s chief economist.
‘Nevertheless, at a national level housing affordability does not appear stretched by historic standards, in part due to the low level of mortgage rates. The cost of servicing a typical mortgage remains close to the long run average as a share of take home pay,’ he explained.
He also pointed out that the outlook for the housing market remains highly uncertain. ‘The number of mortgage approvals fell by almost 20% between January and May, suggesting that activity was cooling. However, there was a modest rebound in June and it is unclear how much of the slowdown was due to the introduction of Mortgage Market Review rather than an underlying loss of momentum,’ said Gardner.
‘Surveyors report that new buyer enquiries have moderated somewhat in recent months, and the prospect of interest rate increases together with subdued wage growth may temper demand in the quarters ahead. However, the brightening economic outlook is likely to provide ongoing support for housing demand. Consumer sentiment remains buoyant thanks to declining inflation and sustained increases in employment,’ he added.
When an interest rate rise is likely to happen is still unclear. According to Gardner the first increase in interest rates still appears some way off. ‘We expect the first increase in the first quarter of 2015. Guidance from the Bank of England suggests that the increase in interest rates is likely to be gradual, and they are expected to settle at a level somewhat below the average prevailing before the financial crisis,’ he said.
Moreover, the supply side of the market remains constrained, which will continue to provide underlying support for prices. Impact of good transport links on house prices clearly evident in major UK cities. There are a wide range of factors that determine property values, from the physical characteristics of the property itself, such as the number of bedrooms, bathrooms and floor area, to the type of neighbourhood in which the house is located,’ he pointed out.
Nationwide recently examined how the proximity to a tube or railway station impacted property prices in the three major cities of London, Manchester and Glasgow, taking account other property characteristics, such as property type, size and local neighbourhood type.
‘Our research suggests that people are willing to pay a significant premium to be close to a station. The impact is most marked in London, where being located 500 meters from a station attracts a 10.5% price premium over an otherwise identical property 1,500 meters from a station. This is equivalent to approximately £42,000 based on the value of the typical London home,’ said Gardner.
‘In Manchester, the premium on a typical property 500 meters from station is 4.6%. London home buyers’ willingness to pay a greater premium for being close to a station compared with those in Greater Manchester and Glasgow probably reflects the greater reliance on public transport in the capital, with residents less likely to drive. London also has the densest network of stations and services, with 94% of properties within 1.5 kilometres of a station, compared with 72% in Greater Glasgow and 69% in Greater Manchester,’ he added.