House prices continue to grow despite higher interest rates -
higher interest rate

House prices continue to grow despite higher interest rates

According to recent figures released by the Nationwide Building Society, house prices across the UK are still increasing despite higher interest rates. The data shows that house prices were 11.2% higher on a year-on-year basis in May.

However, Nationwide’s House Price Index pointed out that the annual pace of growth is slowing down, with average property prices in April standing at 12.1% higher than the previous year.

On a month-on-month basis, house prices in May increased by 0.9%, with the average house price rising to £269,914.

Growth put down to a variety of factors

Growth put down

The growth that is still being seen with house prices has been put down to a combination of factors. However, officials have said that they expect the housing market to slow over the remainder of the year.

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Robert Gardner, Nationwide’s chief economist, said: “Demand is being supported by strong labor market conditions, where the unemployment rate has fallen towards 50-year lows, and with the number of job vacancies at a record high. At the same time, the stock of homes on the market has remained low, keeping upward pressure on house prices.”

May’s rise marks the tenth month in a row where the housing market has experienced a monthly increase. However, this pattern will surprise many people who were expecting property prices to start falling due to the interest rate rises imposed since the end of last year.

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Since December 2021, the Bank of England has increased interest rates four times. This led to a general assumption that these increases would trigger a fall in house prices. However, despite the slight easing seen between April and May, there is no indication that there will be a significant slowdown in growth, as many had envisaged.

The impact of consumer confidence and inflation over the coming six months

While the interest rate rises imposed so far appear to have had little effect on house price growth, Mr Gardner added that various factors could result in a slowdown over the coming six months.

He said that consumer confidence was heading toward record lows and that inflation was set to hit double digits later this year, driven by rocketing global energy prices. In addition, it is highly likely that the Bank of England will increase interest rates further, which could also dampen the housing market.

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Historical figures released by Nationwide also highlighted just how much property prices have rocketed over recent years. Figures showed that when the first house price data was released in 1952, only 32% of households owned their properties, compared to 65% in 2022. In addition, the data showed that in 1952, the average property price was £1,891, which equates to around £62,000 today.