UK house price growth picks up in October

UK house price growth edged higher in October as a healthy economic backdrop and lack of property supported house price growth. the 2.5% annual increase is also supportive of a BOE rate hike announcement Thursday.

UK house price growth picks up in October

UK house price growth accelerated a little in October, the latest Nationwide house price index showed Wednesday. That reverses part of the slowdown recorded during September and August. Although, house price growth remains almost half of year-ago levels.

The Nationwide house price index showed the average price of a home rose 0.2% in October from September. Compared with October 2016, house prices were 2.5% higher. That follows gains of 0.4% on the month and 2.3% on the year, in September.

Healthy backdrop

Price growth was supported by a healthy backdrop as the economy also performed more strongly than expected in the third quarter, while employment increased, too.

“Low mortgage rates and healthy rates of employment growth are providing some support for demand, but this is being partly offset by pressure on household incomes, which appears to be weighing on confidence,” said Nationwide’s chief economist Robert Gardner.

“The lack of homes on the market is providing support to house prices,” Gardener added.

The improvement in the housing market – how ever mild – is a positive sign for Bank of England (BOE) policy makers, as they begin their two-day meeting.

The central bank is already widely expected to raise interest rates to 0.50% when it makes its announcement Thursday. But, further confirmation of the health of the UK economy provides investors reassurance a hike is the most likely outcome.

BOE rate hike to weigh on housing market?

If the BOE goes ahead and raises interest rate as expected, it will be confirmation of their confidence in the health of the UK economy. However, it could also work to slow the pace of improvement in the housing market.

When interest rates move higher, mortgage interest rates tend to follow them. That then means higher monthly mortgage repayments for many home-owners.

A 0.25% interest rate hike would likely add around £15 to a monthly mortgage - £180 per year. But, for those would-be buyers in need of a large mortgage, it could be enough to encourage them to wait a while longer to see if their financial situation improves, or if house price growth slows further.

Nationwide’s Gardner, however, expects the impact to be small. “Providing labour market conditions do not weaken significantly, the impact of a small rate rise on most UK households is likely to be modest,” he said.

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