30 Aug 2013

House prices on the rise in August – again

New Nationwide figures show that house prices are continuing to rise and the British Chambers of Commerce raises its GDP estimate, amid claims that economic growth is gaining pace.

Property values rose by 3.5 per cent year on year, taking the average price for a UK home to £170,514, according to Nationwide building society‘s latest figures.

The British Chambers of Commerce (BCC) also raised its quarterly gross domestic product (GDP) estimate for the second time, from 0.9 per cent to 1.3 per cent.

The rise in house prices was slightly lower that the 3.9 per cent year-on-year surge seen in July, which was the biggest annual rise for three years.

We have had false dawns in recent years and although this upturn appears to be on stronger ground, we must be aware that complacency could lead to setbacks – John Longworth, BCC

Prices rose 0.6 per cent between July and August. But Nationwide said the quarter-on-quarter change showed underlying price rises have remained robust, up 1.4 per cent in the three months to August, which is the strongest pace of increase since mid-2010.

The data comes after Bank of England Governor Mark Carney warned of the risks of another housing bubble amid fears that government stimulus measures are stoking unsustainable price rises.

Earlier this week, he said the bank is “acutely aware” of the potential threats and said action will be taken to clamp down on mortgage lending if needed. The bank could step in and ask lenders to restrict borrowing terms or even force banks to hold more cash on their balance sheets, in an attempt to cool an overheated property market.

Commenting on the new BCC figures, Director General John Longworth warned against too much optimism over the figures. “Unfortunately, however, the recovery is not yet secure,” he said. “We have had false dawns in recent years and although this upturn appears to be on stronger ground, we must be aware that complacency could lead to setbacks.”

First time buyers

Government schemes such as Funding for Lending and Help to Buy appear to be boosting the market as they help first-time buyers on to the property ladder.

Figures from the Council of Mortgage Lenders recently showed that first-time buyers accounted for 45 per cent of house purchase loans in the second quarter – the highest since records began in 2005.

The Funding for Lending Scheme incentivises banks and building societies to lend more in return for discounted loans, and has been credited with improving mortgage availability and reducing rates.

Chancellor George Osborne also launched Help to Buy in April: this allows the purchase of a property with a 5 per cent deposit, while the government then lends buyers 20 per cent of the value of a new home worth up to £600,000, at an interest-free rate for five years.

But economists have warned that these schemes will push up house prices and borrowing levels, rather than spurring on more new home construction.

Robert Gardner, Nationwide’s chief economist, said: “While there have been encouraging signs that house building is starting to recover, construction is still running well below what is likely to be required to keep up with demand.”

He added: “The risk is that if demand continues to run ahead of supply affordability may become stretched.”