Nationwide reports that the August interest rate rise did nothing to cool house prices, which increased by 1.3% in September, bringing the annual rate to 8.2%.
* August interest rate rise did nothing to cool house prices in September
* House prices increased by 1.3% in September, bringing the annual rate to 8.2%
* Strong demand from landlords helps to support the market
* Finding a deposit is tough, but it can still be cheaper to buy than to rent
Commenting on the figures Fionnuala Earley, Nationwide's Group Economist, said: "Just like the weather, the housing market was unseasonably warm in September as August's interest rate hike did nothing to cool the rate of house price inflation. House prices increased by 1.3% during September, bringing the annual rate up to 8.2% - its fastest annual rate of growth since February 2005. A weak patch this time last year, when prices fell by 0.2%, exaggerates the annual increase, but the more recent three-month-on-three-month series still shows a clear pick up in price growth since July. The price of a typical house is now £169,413, almost £13,000 more than at this time last year and the equivalent of a rise of more than £35 per day over the last 12 months."
Housing market demand strengthened again in July with house purchase approvals reaching 120,000 - almost 20% above the long term trend1. Buyer interest remains robust as estate agents continue to report strong enquiries. However, fewer sellers willing to put their properties on the market is adding to already squeezed supply, which increases price pressure. High prices and little room for price negotiation could mean that many of these new enquiries do not come to fruition, but up until now new buyers have found both the appetite and the ability to overcome the affordability hurdle.
Buy-to-let landlord demand looks to remain strong for some time to come. Around two thirds of existing landlords have plans to extend their portfolios2 and many have access to finance from gearing their existing portfolios. Loan-to-value ratios on buy-to-let lending (including remortgaging) has drifted up since the start of 2005. In the first half of 2006 almost two thirds of gross buy-to-let lending was at a loan-to-value ratio of 80% or more, compared with only 41% in the first half of 2005.
Owner-occupier borrowers are also managing to overcome the financing hurdle. Many reports suggest that parents and family are increasingly funding deposits for their children. Nationwide analysis of mortgage lending data suggests that borrowers increase their borrowing by around 10% when remortgaging. Based on a typical house purchase two years ago3 remortgaging now would release around £11,500 which, if used to help an average first-time buyer onto the housing ladder, would leave them only having to find a further £2,300 to fund a 10% deposit. As raising the deposit, rather than meeting the mortgage payment, is the biggest hurdle to first-time buyers, such a helping hand goes a long way.
