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UK house prices increased by 0.4% in July and annual property price growth edged up to 3.5%, according to the latest residential index from the Nationwide building society. 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… Taylor Scott International
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