SUMMARY

House prices rose by 2.2% in August according to Nationwide, the strongest single month of growth since Feb-04. While we always treat a single month’s figure with caution, this brings annual growth to 3.7%, the fastest growth in over three years. Growth over the last two months more than reverses the price falls earlier in the summer. 

Activity also remains robust. In the RICS survey  for August, 82% of surveyors reported rising numbers of new buyer enquiries, while 73% saw rising numbers of new instructions. This supply/demand mismatch has increased competition in the mainstream market, supporting the current value growth. The stamp duty holiday has also contributed to greater buyer demand. 

Other metrics show activity levelling off, albeit from a record high. Analysis of TwentyCI data shows there were 50% more sales agreed subject to contract in the first week of September than the same time in 2019. Although still high, this is a 16% fall on the previous week, with relatively flat growth in the few weeks before that. The market has been boosted by pent-up demand until now, but it seems this demand is starting to return to more normal levels.

High activity levels have stressed lender capacity. Many lenders have therefore reduced the number of high LTV mortgages on offer, and raised the rates on others. This will make it harder for those with small deposits to get on the ladder. Other pathways into low deposit ownership, Help to Buy or Shared Ownership for example, may become more attractive as result. 

The current rise in rates is likely to be temporary. As activity eases, lenders will be keen to remain competitive. The low interest rate environment will allow them to deliver affordable mortgage products with low rates, which will help sustain house prices.

The rental market is also showing signs of strength. RICS data showed 75% of surveyors reported rising levels of demand from tenants. This isn’t quite matched by the levels of supply as only half of surveyors saw increasing numbers of new landlord instructions. This is still relatively high compared the long term trend however.

Rental growth for the country as a whole stood at 1.4% in the year to July. It was strongest in the South West at 2.5%, and weakest in Scotland, at 0.6%.