House prices pick up steam ahead of predicted BoE interest rates hike

Average prices increased 0.6% month-on-month in July, which was much stronger than the flat month expected by economists. This mean house prices were up 2.5% compared to July last year, up from June’s increase of 2.0% and batter than the 1.8% that was forecast, though Nationwide said prices were still only expected to increase by 1% over the full year.

Although this was the second month of improvement, it came on the back of weak prices in prior months, with just a 0.4% increase in prices for the past three-month compared to the three month before.

The housing market has suffered slow growth since the result of the Brexit referendum and has trundled on amid the continuing uncertainty over a final deal.

The new data comes just a day before the Bank of England's monetary policy committee meet to discuss a potential interest rate rise, with economists predicting that rates may rise from 0.5% to 0.75%.

Robert Gardner, Nationwide's chief economist, said: “Providing the economy does not weaken further, the impact of a further small rise in interest rates on UK households is likely to be modest.”

Gardner said only a small proportion of borrowers will be impacted by the change as lending on personal loans is often unaffected by movements in the bank rate and that, in recent years, most new mortgages have been extended on fixed rates.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Marginal increases in mortgage rates now have a big impact on affordability, because loan-to-income ratios for first-time buyers are at a record high.”

Around 12% of homeowners already spend over 30% of their gross income on their mortgage and “would struggle amid a rate rise”, according to Gardner.