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House prices in the UK increased by 0.5% month on month in July, defying the vote to leave the European Union which many commentators though would have an adverse effect on the nation’s property market. It means that the annual rate of house price growth edged up from 5.1% in June to 5.2% in July, taking the average price of a home to £205,715, according to the data from the Nationwide House Price Index. It is the first index from a major lender to be published since the historic vote on 23 June and overall the index report says that the UK housing market is still seeing steady growth. However Nationwide chief economist Robert Gardner said it is important to note that the index is based on data at the mortgage offer stage so there still might be an impact in future data. ‘It means any impact from the vote may not be fully evident in July’s figures, as there is a short lag between a buyer making the decision to purchase a property and applying for a mortgage,’ he explained. He also believe that the outlook can only be described as uncertain. ‘It will be tempting for commentators to assign any trends in the coming months to the impact of the referendum. Housing market transactions were always likely to soften over the summer after the surge in activity in March, as buyers brought forward purchases of second homes to avoid the stamp duty levy, which took effect in April,’ he pointed out. ‘Determining how much of any fall-back in activity is the result of the tax changes and how much is due to the referendum will be difficult. In the near term, increased economic uncertainty may lead to weaker demand for homes. Leading indicators are consistent with softening ahead. Household confidence fell sharply in the wake of the referendum result, especially attitudes towards making major purchases, which in the past has correlated with mortgage activity, though less closely in recent years,’ he added. He also pointed out that in the run up to the vote the Royal Institute of Chartered Surveyors (RICS) reported declines in new buyer enquiries and expectations of weaker price growth amongst surveyors. ‘Although these trends predate the vote and are likely to have been impacted by the recent tax changes as well as the referendum. How the labour market evolves will be crucial in determining the demand for homes in the quarters ahead. It is encouraging that conditions were robust in the run up to the vote, with the unemployment rate falling to a ten-year low in the three months to May,’ Gardner said. ‘The decline in long term interest rates to new all-time lows in recent weeks should also help to keep borrowing costs low and provide some support for demand. Even if there is a fall back in demand as a result of economic uncertainty, the impact on house prices is not certain, as potential… Continue reading →