House price growth continues to slow in July

House price growth continued to slow in July, according to the latest data from mortgage lender Nationwide and online estate agent Zoopla.

Prices grew by just 0.1% in the month, according to the Nationwide, down from 0.2% recorded in June. This is the slowest monthly growth recorded since prices fell exactly a year ago in the wake of the cancelling of the temporary stamp duty incentive introduced during the covid pandemic.

However, because of the comparator with a decline in prices in same month last year, Nationwide said annual house price inflation actually grew in the month, to 11%, with the lender hailing the “surprising degree of momentum” remaining in the market given the raft of cost of living pressures impacting on the UK economy.

The figures came as Zoopla raised its forecast for the number of housing market transactions likely this year by 8%, to 1.3 million. The firm said it now expected prices to end the year 5% above the level they started it – implying a further 1.4 percentage points of price rises in 2022 as the market cools down from its post-pandemic highs, with home values already up 3.6% this year so far.

Zoopla also said prices month-on-month had risen by 0.1% in the last month – the second consecutive month of near static prices.

The numbers come after the Bank of England on Friday said mortgage approvals for house purchases had fallen to decreased to 63,700 in June, from 65,700 in May, which is below the 12-month pre-pandemic average up to February 2020 of 66,700.

Robert Gardner, Nationwide chief economist, said: “The housing market has retained a surprising degree of momentum given the mounting pressures on household budgets from high inflation, which has already driven consumer confidence to all-time lows.

“We continue to expect the market to slow as pressure on household budgets intensifies in the coming quarters, with inflation set to reach double digits towards the end of the year.”

Gardner said that widespread expectations that the Bank of England will raise interest rates further will likely cool the housing market further, notwithstanding the Bank’s June decision to scrap the affordability test on mortgage borrowers, which came into effect yesterday.

Zoopla’s monthly house price index said it expected that mortgage rates, currently sitting at around 3.5%, were likely to move towards 4% - the point, it said, “beyond which we would expect to see zero annual house price growth.”

Zoopla’s report added: “Were rates to go even higher, then modest price falls are a likely consequence as demand is squeezed”.

Zoopla said that demand for homes remained 25% above the five year average, which is well down from the 58% above the five year average seen as recently as April. It named Wolverhampton and Bradford as the two areas with the highest demand in comparison to average, while Shrewsbury and East Central London recorded the lowest.

Lawrence Bowles, director of research at Savills, said: “Mortgage costs have risen rapidly over the first half of the year, as the Bank of England raises rates to control inflation. We’re predicting these rate rises mean that house price growth will slow to 7.5% by the end of the year. Negative pressure on prices will continue into 2023.”

However he added the business had actually raised its longer term forecasts in the light of the decision by the Bank of England to scrap its mortgage affordability tests. He said: “Changes to mortgage affordability criteria enacted yesterday could mean there’s more capacity for price growth further down the line. We’ve raised our five year price forecast from 12.9% to 17.4%, despite the headwinds currently faced by the UK economy.”