Nationwide: House prices up by 1.3% in August

UK house prices rose by 1.3 per cent, their biggest monthly rise for two-and-a-half years, in August, according to the Nationwide.

The average home in the UK is now valued at £164,729, still 0.7 per cent lower than they were 12 months ago, but the biggest monthly rise since January 2010 reverses the previous two months declines.

Even though the monthly increase was largely due to seasonal adjustment helping to increase house prices by such a margin, some analysts believe the rise could encourage potential buyers.

Overall house prices have remained relatively stable after the bounce baqck in 2009 after the slump in the property market seen in 2007 and 2008.

Ben Thompson, MD Legal & General Mortgage Club said: "This is much needed and timely news for homeowners. This may even serve as a gentle nudge to those currently renting who feel no urgency to buy at the moment.”

But without the seasonal adjustment, house prices only rose by 0.2 per cent. The low level of trasactions has accentuated the monthly trends. Seasonal adjustment attempts to allow quieter months for the property market to be compared fairly with busier periods.

Robert Gardner, Nationwide's Chief Economist, said: “The fact that the annual pace of house price decline moderated to -0.7% in August from -2.6% the previous month provides evidence that conditions remain fairly stable.

"This may be explained by the surprising resilience evident in the UK labour market, with further increases in employment in recent months, even though the UK economy has remained in recession."

Mr Gardner said that the future direction of house prices will be dictated by whether unemployment continues to go up.

He said: "House prices are expected to remain fairly stable over the next two years, while incomes are likely to continue to rise gradually, which will also help to support affordability."

However, Nationwide data also contains numbers that really get to the heart of the reason for the stuttering UK property market.

Before the credit crunch, between 2005 and 2007, the average deposit required was ten per cent. Now it is double that at 20 per cent. So, it is perhaps no coincidence that mortgage approvals are now less than half the level they were between 2005 and 2007 and the number of first-time buyers has also fallen by almost 50 per cent.

The Bank of England’s Funding for Lending (FLS) launched in July is attempting to remedy some of these problems by offering banks cheaper funding as long as they pass on the borrowed money to consumers.

However, although it is too early to assess its impact, early evidence suggests that lenders are offering cheaper deals but only to homeowners with high levels of equity.

Until cheaper mortgage products are unveiled by lenders that require less prohibitive levels of deposit, activity in the housing market is likely to stay muted.

B ut if you can get onto the property market, mortgage repayments rae at theoir cheapest level for 15 years, according to a report published by the Halifax last week. As a proportion of net income, they make up just 26 per cent, compared to 48 per cent of a household's net income in 2007.

The FLS has not led to an increase in products available to those with small deposits, indeed the choice has fallen over the last six months.

Nationwide, Halifax and Santander are amongst the lenders who have actually raised their standard variable mortgage rates in the last six months.

The strong bounce-back in August contradicts some of the other property surveys and highlights the volatile state of the property market in the UK in 2012.

This week, the Bank of England reported that mortgage approvals rose slightly in July, but are still well below long-term normal levels. The Land Registry echoed today’s data from Nationwide, suggesting house prices rose by 0.8 per cent in July, up to £162,900.

Meanwhile, Hometrack, the letting agent, stated that the supply and demand balance had widened and predicted that this could help lower property values over the next few months.

Robert Gardner said: "Given the difficult economic backdrop, the extent of the rebound in August is a little surprising. However, we should never read too much into one month’s data.”

Russell Quirk, director of eMoov.co.uk concurred, saying: "Read nothing more into August's 1.3% rise than low transaction levels. Prices are jumping around from one month to the next and September could just as likely see a reverse.

"In a market as erratic and inconsistent as this, there is some consistency: house prices in the south are proving infinitely more resilient than those in the north.

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