Nationwide predicts rate rise as house price growth rebounds

Nationwide says it is "looking increasing likely that the Bank of England’s Monetary Policy Committee will increase rates at their next meeting tomorrow, which the building society believes would have a 'modest' impact on UK households.

Despite increasing house prices, Nationwide has left its estimate of 2018 house price growth unchanged at 1%.

Robert Gardner, Nationwide's chief economist, said: “Providing the economy does not weaken further, the impact of a further small rise in interest rates on UK households is likely to be modest.

“This is partly because only a relatively small proportion of borrowers will be directly impacted by the change. Most lending on personal loans and credit cards is fixed or tends to be unaffected by movements in the Bank Rate. Similarly, in recent years, the vast majority of new mortgages have been extended on fixed interest rates.

“While the impact for most borrowers is likely to be modest, it’s important to note that household budgets have been under pressure for some time because wages have not been rising as fast as the cost of living. Indeed, in real terms (i.e. after adjusting for inflation) wage rates are still at levels prevailing in 2005."

Mike Scott, chief property analyst at Yopa, commented: "Nationwide reports a slight strengthening of the market, with the annual rate of growth in house prices increasing to 2.5%. However, the lender does not expect this upturn to continue, and is sticking with its forecast of 1% growth in house prices for the full year.

"Like other commentators, Nationwide expects the Bank of England to increase its base lending rate to 0.75% later this month. The immediate impact on the market should be minimal, since most new mortgages are fixed rate and current mortgage rates are already pricing in an increase in the base rate.

"However, it may affect market sentiment, especially if it is followed by another rate rise within a few months. If the cost of borrowing continues to creep up, the longer-term effect on the housing market may be more severe, as mortgage rates rise from the historically low levels that we have enjoyed for the past decade. However, the shortage of supply will continue to prop the market up, and any reversals are likely to be short-lived."

Sam Mitchell, CEO of Housesimple, added: "The fact that it is difficult to say very much about these figures, sums up market conditions at the moment.

"Nothing much is happening of note, and it's hard to know what to say other than it's not necessarily a bad thing that the market is subdued and price growth is flat.

"On the ground there has been a noticeable increase in properties being listed, and there are still enough sales progressing that the market hasn't ground to a halt, but they are progressing at a steady rate.

"Buyer and seller activity is likely to pick-up significantly in a month or so. September is generally a very busy period for the housing market, and sets the tone for the rest of the year.

"We should also get a better idea how buyers are sellers are feeling, and whether the likely small rise in interest rates has had any immediate impact."