UK house prices surge most in 17 years: Nationwide Building Society

London

UK house prices grew at their fastest annual pace for more than 17 years in June, adding to a growing wealth gap that's worrying policymakers.

Property prices rose 13.4 per cent from a year earlier, the biggest gain since November 2004, Nationwide Building Society said on Tuesday. It's the first major survey on prices for this month, indicating the momentum registered by estate agents and mortgage lenders in May is continuing.

Buyers are snapping up homes with more space outside urban areas after 16 months of lockdowns to control the pandemic. The market is also benefitting from borrowing costs near a record low, and a temporary tax break on purchases that will be phased out starting on Wednesday.

"Despite the increase in house prices to new all-time highs, the typical mortgage payment is not high by historic standards compared to take-home pay, largely because mortgage rates remain close to all-time lows," said Robert Gardner, Nationwide's chief economist.

Prices rose 0.7 per cent from May to £254,432 (S$473,675), their third consecutive monthly increase.

"UK house prices, which accelerated in June at the fastest annual pace since 2004, are near their peak. The removal of a government tax break on purchases at the end of this month is likely to take some of the heat out of the market," said Niraj Shah of Bloomberg Economics

Regional data shows all parts of the UK saw accelerating prices, the largest of which were in Northern Ireland and Wales with 14 per cent and 13.4 per cent respectively. Scotland and London were the weakest performing regions, though the capital still saw a pick-up in growth to 7.3 per cent from 4.8 per cent in the previous quarter.

The findings were reinforced by a separate report from property website Zoopla, which painted a picture of surging demand, dwindling supply and properties selling in the shortest time in five years. Rochdale and Bolton in northern England and Hastings on the south coast recorded the biggest price gains of 65 towns and cities monitored.

"Prices are rising fastest in the most affordable markets as activity continues at elevated levels among first-time buyers and movers looking for more space or a lifestyle change," said Grainne Gilmore, head of research at Zoopla.

The Treasury will phase out the tax holiday starting on June 30, and it will end altogether on Sept 30. However, agents expect the market to remain buoyant as the economy reopens and millions of people move back into work.

The boom, which has been partly fuelled by cheap borrowing costs, is now raising concerns at the Bank of England. Chief economist Andy Haldane, who steps down from his post this month, has warned of growing inequality between homeowners and younger people unable to afford to get onto the property ladder.

Jon Cunliffe and Dave Ramsden, who both serve as deputy governors for the central bank, said after Nationwide's report last month that policymakers were watching the house prices carefully as they weigh whether to pare back stimulus for the economy.

"Underlying demand is likely to remain solid in the near term as the economy unlocks," Mr Gardner said. "Consumer confidence has rebounded while borrowing costs remain low. This, combined with a lack of supply on the market, suggests further upward pressure on prices. But as we look toward the end of the year, the outlook is harder to foresee." BLOOMBERG