The average home price is now £188,903, a monthly increase of 1% - however, an annual change of 11.8%. London saw a growth of 26%, indicating that it continues to outstrip the rest of the UK by a significant amount.
Robert Gardner, Nationwide's Chief Economist, said:
“House prices recorded their fourteenth successive monthly increase in June, rising by 1%. As a result, the annual pace of price growth picked up to 11.8% from 11.1% the previous month.
In seasonally adjusted terms house prices reached their 2007 peak in Q2, just as UK economic output is likely to have surpassed the high water mark reached before the financial crisis.
While all regions recorded annual price gains for the fourth quarter in a row, there is still significant variation across the UK, with the South of England continuing to record the strongest rates of growth. In particular, London continued to outperform, with prices up by almost 26% in Q2 compared to the same period of 2013.
The price of a typical property in London reached the £400,000 mark for the first time, with prices in the capital now around 30% above their 2007 highs and more than twice the level prevailing in the rest of the UK when London is excluded. In the UK as a whole, prices are less than 1% above their pre-crisis peak. Excluding London they are 0.4% below peak.
The annual pace of growth in the capital will probably start to slow in the quarters ahead, given the high base for comparison from Q3 2013 onwards and given anecdotal evidence from surveyors and estate agents that activity may be starting to moderate.
Recent policy measures unlikely to have a significant impact in the near term.
Gardner said:
“The Financial Policy Committee’s decisions to limit the proportion of lending at or above 4.5 times borrowers’ income to no more than 15% of new loans1 and to introduce a stress test to ensure that borrowers can afford a three percentage point increase in Bank Rate are unlikely to have a significant impact on housing transactions or the pace of price growth in the near term.
Most major lenders are already using a stress rate in their affordability calculation that is broadly consistent with the new stress test. Similarly, the proportion of house purchase loans at or above 4.5 times borrowers’ income is currently some way below the 15% cap.
However, these policy measures, along with previous actions, such as the introduction of Mortgage Market Review measures, should help to limit the risk of house prices becoming detached from earnings without de-railing the recovery in the wider housing market.
This is important, since lending activity has slowed markedly in recent months, with mortgage approvals in May around 19% below January’s high. The slowdown may partly be the result of the introduction of MMR measures, which may take a few months to bed down. However, the underlying pace of demand remains unclear, and transaction levels remain some way below historic averages.
Rising longer term interest rates may also dampen buyer demand.
“Mounting expectations that interest rates may rise earlier than previously anticipated may also act to dampen housing market activity in the months ahead. As investors have become more confident that the Bank Rate will start to rise gradually from late 2014 or early 2015, so longer term interest rates have started to increase. If this is sustained, it is likely to feed through to mortgage rates, which would also help to prevent buyer demand rising too strongly.
Nevertheless, it is important to note that the Financial Policy Committee does not have the tools to address the fundamental problem in the housing market – the lack of supply. While there are encouraging signs that the pace of construction has picked up, the pace of house building is still well below the expected pace of household formation.”
Jonathan Samuels, chief executive of Dragonfly Property Finance, said:
"House price growth of 26% in London, bringing it to 30% above the 2007 peak, is mind-boggling. Forget orbit, London has entered another dimension. Despite the raft of big numbers announced by the Nationwide, there is every reason to believe the market in the UK as a whole will slow in the months ahead. And that's probably for the better.
"The Mortgage Market Review has clearly had an impact on mortgage approvals and is likely to slow the rate of growth in the near term, while the looming prospect of rate rises will also play a role. When it does come, the interest rate up-cycle, however slow, moderate and protracted, will dampen demand.
"The rate of house price growth has ramped risk levels significantly and buyers, especially in the capital, need to be vigilant. The Bank of England also needs to be vigilant. The property market getting out of control is a genuine threat to the recovery of the economy."
