Nationwide’s figures, based on loans approved by the society over the month, show that over the past three months prices have risen by 1.1%, up from a growth of 0.8% during the previous three months. “Looking ahead, ultra-low interest rates, high levels of confidence, strong growth in real incomes and easing credit conditions should result in mortgage approvals getting back on track”.
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“Fixed rate deals are most popular amongst first time buyers for whom certainty over monthly payments is likely to be particularly important”. According to Nationwide, house prices in the country averaged £196,807 in October.
‘While this bodes well for a sustainable increase in housing market activity, much will depend on whether building activity can keep pace with increasing demand, ‘ said Robert Gardner, Nationwide’s chief economist.
He said that fewer variable interest rate mortgages should help to insulate many households from the impact of higher interest rates but he warned that the majority of recent fixes are for relatively short time periods with 65% for two years and 30% for five years.
Mr Gardner said: “This is probably a reflection of ongoing uncertainty about the precise timing of United Kingdom interest rate increases as well as a desire to lock in low interest rates”.
However, he said the housing market should be able to cope with any rate rises in the coming year, “provided the increase is modest and the economy and the labour market remains in good shape”.
“The upside for housing market activity and prices is expected to be constrained by more stretched house prices to earnings ratios, tighter checking of prospective mortgage borrowers by lenders and the likelihood that interest rates will start rising gradually during 2016”.
In a poll conducted by Reuters, economists said they expect the Bank of England to raise interest rates in the second quarter of next year.
The latest rate of increase was the fastest since May this year, when prices grew 4.6 percent. It’s hard to believe but many home-owners have never known a conventional interest rate environment, and when it finally comes it could well prove a shock.
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Buyers and re-mortgagers are also protecting themselves from a future leap in the base rate – now at 0.5 per cent – with almost 90 per cent of new mortgages taken out over the past 12 months being fixed rate products.
