House price growth stalls
Latest data from the Nationwide Building Society shows house price growth stalling in July - the 0.1% increase giving a year-on-year rise of 9.9%. This contrasts sharply with June, when prices rose 1.1%, giving a year-on-year increase of 11.1%. The average price of a property in the UK now stands at £184,270.
Commenting on the figures Fionnuala Earley, Nationwide’s Chief Economist, says that after surprisingly picking up steam in June, house prices were almost unchanged in July, and their underlying trend growth resumed a downward path.
Earley adds that the Bank of England now faces a tough balancing act in the months ahead, with tightening consumer finances on the one hand and resilient economic growth on the other.
Fundamentals do suggest that household finances are coming under considerable pressure, and that house prices and consumer spending will both see a slowdown in the second half of the year.
She notes that a borrower looking to refinance a 2-year fixed rate mortgage from the mid-2005 to mid-2006 period is likely to bear nearly the full brunt of the MPC’s recent tightening in one go.
For example, a homebuyer who bought a typical flat at a 75% loan-to-value ratio in August 2005 would see a £78 increase in monthly payments when re-mortgaging, excluding the effects of any fees.
Assuming the borrower earns the UK average income, the payment shock from re-mortgaging would eat up about two thirds of the increase in monthly take-home pay that the individual has seen in the last two years.
“When the effects of inflation over this period are added, the squeeze on finances becomes even more acute and further highlights the risk of monetary overkill,” says Earley.