A surprise spike in UK house prices in July has increased the annual rate of property inflation to 3.3%, pushing the cost of buying a home to a record high.
Halifax said house prices rose 1.4% in July alone, taking the average house price to a new record of £230,280. The annual growth rate jumped from 1.8% in June to 3.3% in July, the largest increase since last November.
The increase pushed house price inflation back above wage growth, which is currently at about 2.5% a year, and comes just days after the Bank of England raised interest rates.
Halifax said house prices are being supported by the underlying strength in the jobs market, with employment rising by 137,000 in the three months before May. Pressure on household finances is easing as wages have begun to outstrip inflation.
Although a rebound in prices will dismay those struggling to save money to buy their first home, some estate agents greeted the figures enthusiastically.
“Annual growth just exploded to a level not seen since the autumn,” said the London agents James Pendleton.
“With two negative quarters behind us, many were hoping the usually busy summer period would produce a bit of a bounce, and this is a promising start.”
But Halifax said that transaction activity “remains soft” and that it expected the number of mortgage approvals to be broadly flat during 2018.
Economists said the July figures from Halifax should be treated cautiously. Howard Archer, the chief economic adviser to the EY Item Club, said: “We remain doubtful the UK housing market is stepping up a gear. Activity is still relatively lacklustre despite coming modestly off 2018 lows, with consumer conditions challenging.”
The Halifax figures for July are significantly higher than those reported by its rival lender Nationwide. It recorded a rise of 0.6% in July compared with Halifax’s 1.4% figure. Its figure for annual house price inflation is 2.5%.
Next month’s figures will be the first to reflect the impact of the rise in Bank of England base rate to 0.75%, although few property experts are expecting a significant impact given that most households are on fixed rates.
TSB has followed Nationwide by raising its base mortgage rate by 0.25%, but giving most of its savers an uplift of just 0.1% in interest paid.
Jonathan Harris of the mortgage broker Anderson Harris said: “We don’t expect this month’s interest rate rise on its own to have too much of an impact. However, it may cause some nervousness going forward as buyers worry about the possibility of future rate rises. It is no surprise then that fixed-rate mortgages continue to be by far the most popular product as borrowers look to protect themselves against future uncertainty.”
Brexit uncertainty is likely to keep house price rises restrained, said Jonathan Hopper, managing director of Garrington Property Finders. “The future course of the market is delicately balanced. With even cabinet ministers now warning that a no-deal Brexit is more likely than an orderly exit from the EU, investment buyers are dialling up their caution.”