House price leap defies fears of referendum downturn in property market
An unexpected rise in house prices in August and an upturn in consumer confidence today added to the sense that the Brexit vote at the end of June has yet to derail the UK economy.
House prices rose 0.6% this month, according to Nationwide, when analysts had been predicting a fall of between 1% and 2%. That pushed the annual increase from 5.2% in July to 5.6% in August.
Consumer confidence, which suffered its biggest drop for 26 years in July, recovered somewhat in August with GfK’s barometer rising five points from -12 to -7.
Official data this month have already shown strong retail sales and a rise in employment since the Brexit vote.
But the Bank of England reported this week that the number of mortgage approvals made to home buyers fell to its lowest level for 18 months in July, in a sign that the vote to leave the EU had a cooling effect on the housing market.
Robert Gardner, Nationwide’s chief economist, said: “The pick-up in price growth is somewhat at odds with signs that housing market activity has slowed in recent months.
“However, the decline in demand appears to have been matched by weakness on the supply side of the market. Surveyors report that instructions to sell have also declined and the stock of properties on the market remains close to 30-year lows.
“This helps to explain why the pace of house price growth has remained broadly stable.”
Gardner said the Bank of England’s decision to lower the base rate to 0.25% will provide an immediate benefit to many mortgage borrowers, who will see their repayments become cheaper.
However, he added, “for most the boost will be fairly modest”, with the typical saving from the base rate cut being around £15 per month.
“It’s important not to hang too much significance on one or two bits of data because it’s still very early days,” said Laith Khalaf, analyst at Hargreaves Lansdown. “Judging the economic impact of Brexit right now is a bit like predicting the winner of the Premier League based on who’s at the top of the table after the first couple of games.”
Howard Archer, economist at IHS Global Insight, said: “Housing market activity is likely to be limited over the coming months and prices will weaken as prolonged uncertainty following the UK’s vote to leave the EU constrains consumer confidence and willingness to engage in major transactions, and also hampers economic activity.”