The monthly rise follows a slight dip of 0.2% that was recorded in June and takes the average price of a home to £195,621. While annual growth has increased from the 3.2% recorded the previous month.
According to Robert Gardner, Nationwide's chief economist, after moderating over the past 12 months, there are tentative signs that annual house price growth may be stabilising close to the pace of earnings growth, which has historically been around 4%.
‘This would bode well for a sustainable increase in housing market activity, though whether this will be maintained will depend on whether building activity can keep pace with increasing demand,’ he said.
He pointed out that the outlook on the demand side remains encouraging. ‘Employment growth has remained relatively robust in recent quarters, and, after a prolonged period of subdued growth, wage growth is also edging up. With consumer confidence buoyant and mortgage rates still close to all-time lows, demand for housing is likely to firm up in the quarters ahead,’ he explained.
But he added that it remains unclear whether activity on the supply side will catch up with demand. ‘The number of new homes under construction has started to pick up, albeit from historically low levels, and further increases are required if a sustainable recovery in the housing market is to be maintained over the longer term,’ said Gardner.
The July index report also reveals the effect of significant changes to the stamp duty paid on sales which were introduced six months ago, resulting in bunching relating to the new tax thresholds.
Gardener explained that the old slab structure used to result in significant distortions with a clustering of transactions at the tax thresholds. Under that system, paying £1 more would result in significant additional stamp duty being due. For example, paying £1 over the £250,000 or the £500,000 threshold used to trigger an additional £5,000 of tax.
‘Even though the change to SDLT only came into effect six months ago, the impact on the pattern of transactions is already evident, with much less bunching of transactions around the £125,000, £500,000 and in particular the £250,000 price points,’ he said.
‘Moreover, based on the first six months of transactions data from the Land Registry, nearly 235,000 purchasers in England and Wales have paid less tax under the new regime, with an average benefit of around £1,800,’ he added.
He pointed out that the benefits are greatest in the South of England where average house prices are higher. ‘We estimate that around 85% of transactions in London, the South West and South East have benefited from the changes, compared with around 55% in the North, Yorkshire and Humberside, and the North West of England,’ said Gardner.
‘However, we estimate that around 5,000 or 2% of purchasers paid more, two thirds of whom were in London, with an average of £28,000 more tax being paid compared with the old system. On balance, considering the net effect of those paying more and those paying less, we estimate that the changes have resulted in around £275 million less tax being paid than would have been the case under the old stamp duty regime,’ he concluded.
Alex Gosling, chief executive officer of online estate agents HouseSimple, believes that prices will keep rising as demand continues to outstrip supply. ‘With strong employment, a rise in wage growth, and mortgage rates sticking at a record low, prices look like they’ll edge up further in the coming months,’ he said.
‘The market desperately needs a boost in new homes if supply is ever to come close to catching up with demand. But the spectre of an interest rate rise looms ever closer with expectations that the Bank of England will start raising them by the year end,’ he pointed out.
‘The property market has been in an interest rate paradise for a number of years now but very soon, it seems, that will be a paradise lost. The extent of the impact of a rate rise on the market is a huge unknown,’ he added.
Rob Weaver, director of property, residential investment platform Property Partner, said that weak supply continues to hamper the property market. ‘Although demand is likely to drop off a little over the summer, easing house price growth, it is shaping up to be a solid Autumn, with prices set to rise more sharply as of September,’ he predicted.
‘Sellers are likely to be in an increasingly strong position as the autumn progresses, although a cloud looms overhead in the form of a possible interest rate rise before the end of the year. Buyer demand and confidence remains strong right now, but an interest rate rise as early as December could see buyer confidence in the market ebb away very quickly. Even a quarter percent rise in the base rate could have a material effect on demand,’ he explained.
‘On a more positive note, it's encouraging to see that buyers overall are paying less stamp duty and are shifting away from the traditional thresholds. The clustering of old made for an artificial and ultimately restrictive market,’ he added.
Jonathan Hopper, managing director of the buying agents Garrington Property Finders, pointed out that the cost of the average home is now within touching distance of the symbolic £200,000 mark, but he believes that while buyer demand and confidence are strong, much of the rise in prices is being driven by constrained supply.
‘The exception is the prime property market, which is still reeling from the rise in the top rate of stamp duty. While the Nationwide’s calculations show that the stamp duty changes have reduced price bunching, and that most buyers are paying less of the tax, the top 2% are paying an average of £28,000 more per purchase,’ he said.
‘With nearly half of all the stamp duty paid in England and Wales collected in London, this is having a substantial chilling effect on the capital’s prime property market. The stamp duty hike was supposed to gently apply the brakes to stop the prime property market racing away. But in the event its effect has been more of an emergency stop,’ he explained.
‘Even though both GDP and real wages are growing strongly, buyer sentiment is about more than just economics and there is a growing sense among buyers that the current bargain basement interest rates won't last much longer with some mortgage rates creeping up already. With many predicting that the Bank of England’s Monetary Policy Committee will this week signal an imminent interest rate rise, the cost of borrowing is likely to increase by the end of the year,’ he added.
