Nationwide believes that house prices are unlikely to be hit significantly by financial market turmoil in the short term, but the dependence of the UK economy on financial services poses a longer term risk. Unexpectedly low inflation and financial market unrest has reduced the risk of a Bank Rate rise to 6%.
The Nationwide House Price Index released today shows house prices have increased by 0.6% in August (up from 0.1% in July), although the annual change has dropped slightly to 9.6% (9.9% in July). The average house price is now £183,898 (seasonally adjusted).
Commenting on the figures Fionnuala Earley, Nationwide's Chief Economist, said: "The rate of house price growth lifted a little during August, but the annual rate continues to moderate. Prices increased by 0.6% during the month, but the annual rate fell to 9.6% down from 9.9% in July. A typical UK property cost an average of £183,898 in August, £16,177 more than one year ago. The US sub-prime crisis has created turmoil in international financial markets, but this is unlikely to have a significant additional effect on the rate of growth of house prices in the UK in the short term. We still expect house price growth in 2007 to come in close to the middle of our forecast range of between 5% and 8%. The expected slowing results from three main factors, each of which have been around for some time. First, weaker affordability, as house prices continue to grow more quickly than earnings; second the effect of higher interest rates and inflation on consumers' pockets; and third lower house price expectations."
