Taylor Scott International News
House prices in the UK increased by 0.6% in October, taking the average price of a home to £196,807, according to the latest index to be published. The data from the Nationwide, one of the country’s main lenders, prices are now up 3.9% year on year. The report points out that over the past five months annual price growth has remained in a fairly narrow range between 3% and 4%, broadly consistent with earnings growth over the longer term. ‘While this bodes well for a sustainable increase in housing market activity, much will depend on whether building activity can keep pace with increasing demand,’ said Robert Gardner, Nationwide's chief economist. He also pointed out that fixed rate mortgages have remained the most popular because of ongoing uncertainty about when the Bank of England might introduce an interest rate rise. ‘Historically low interest rates have helped to offset the negative impact of rising house prices on affordability. Indeed, even though house prices are at an all-time high, the cost of servicing a typical mortgage is still close to the long term average as a share of take home pay,’ Gardner explained. He said that fewer variable interest rate mortgages should help to insulate many households from the impact of higher interest rates but he warned that the majority of recent fixes are for relatively short time periods with 65% for two years and 30% for five years. ‘Nevertheless, the housing market should be able to cope with higher interest rates in the year ahead, provided the increase is modest and the economy and the labour market remain in good shape,’ he said ‘Guidance from the Bank of England suggests that the increase in interest rates is likely to be gradual, and that they are expected to settle at a level somewhat below the average prevailing before the financial crisis, which should help ensure borrowing costs remain manageable,’ he added. Alex Gosling, chief executive officer of online estate agents HouseSimple believes that as building activity is highly unlikely to keep up with demand, average house prices are likely to continue to rise and rising interest rates could affect many home owners. ‘It's hard to believe but many home owners have never known a conventional interest rate environment, and when it finally comes it could well prove a shock. If the economy holds firm then gradual rate rises will be better accommodated, but the extent of the impact of a rate rise on the market remains a great unknown,’ he explained. ‘What we can say with near certainty is that if rates rise sharply, many borrowers could get caught out. Thankfully people are moving to fixed rate mortgages to protect themselves,’ he added. According to Mark Dyason, director of Edinburgh Mortgage Advice, borrowers know higher rates are coming sooner or later and they are thinking ahead. ‘First time buyers and people with smaller deposits are especially likely to select a fixed rate because that's what most lenders are… Taylor Scott International
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