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House prices hit fresh high ‘despite headwinds’

Written by: Lana Clements
House prices notched up bumper growth of 11.2% annually in May, even as households face the rising cost of living and higher mortgage rates.

A typical UK home is now worth £269,914, with growth only falling back modestly from 12.1% measured in April, according to data from Nationwide.

Values have now increased consecutively for the past 10 months.

Demand is supported by strong employment in the UK, according to Robert Gardner, Nationwide’s chief economist.

He said: “Despite growing headwinds from the squeeze on household budgets due to high inflation and a steady increase in borrowing costs, the housing market has retained a surprising amount of momentum.”

However, the market is expected to slow as the year progresses, Gardner added.

“Household finances are likely to remain under pressure with inflation set to reach double digits in the coming quarters if global energy prices remain high. Measures of consumer confidence have already fallen towards record lows. Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.”

The sombre outlook is the latest warning of an expected slowdown in the market.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown said: “The impact of rising prices is gradually taking a toll, and while the jobs market continues to support buyers, wages are falling behind inflation, which will feed into just how much people can afford to spend on a property.”

She added: “We also know that mortgage companies are factoring in higher costs to affordability calculations, which will make it harder to borrow, and that more of their surveyors are down-valuing properties, because they don’t think they’re worth what buyers are prepared to pay.

“We’re not expecting a blight to strike the market, because right now, demand is still outstripping supply, which is likely to keep prices from falling. However, over the coming months, we’re likely to see buyers take their time, exercise a bit more caution, and house price rises to slow significantly.”

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