Summary

House prices rose 0.6% in July, according to Nationwide. This is the second month in a row with relatively strong growth, taking year to date (YTD) growth to 1.3%. This is less than last year, when growth was 1.8% over the same period. In contrast, three-month house price change entered negative territory in May for the first time since 2012, according to the ONS index.

The upbeat tone from Nationwide is echoed in the latest RICS survey. More surveyors reported rising numbers of homes coming to market in June than at any time since Aug-13, and almost as many surveyors reported rising numbers of buyer enquires as falling. This may translate into rising market activity in time, but transaction numbers in May showed that nearly all regions are still around 10% down on this time last year.

Despite falling transactions, other signs of strength in the economy have led the MPC to keep its word and hike the base rate by 25 basis points to 0.75%. We expect this rise to be passed on to borrowers in due course, although the large number of homeowners on fixed rate mortgages will lessen the short-term impact of the rise. We estimate the rise will eventually increase annual mortgage costs by £137 for the average household. This will increase the pressure on many who have seen negligible growth in earnings over the past couple of years (click here to see our recent blog). There are signs that wages may at last be increasing faster than inflation, providing an offset to rising mortgage costs.