Average UK property prices moving higher

A report by the Nationwide Building Society has highlighted the ongoing increase in UK property prices with the average three-bedroom semi now changing hands at nearly £197,000. This is a 0.6% increase on September and a 3.9% annual rise. Despite the fact that experts continue to talk down the UK property market it seems many factors are still coming into play and demand is on the whole still increasing.

The rate of growth in UK house prices is now at a six-month high after taking something of a breather earlier in the year.

Mortgage lending on the up

Mortgage lending in the UK hit increased by an impressive £3.6 billion in September up from £3.4 billion in August and well above the six-month average of £2.6 billion per month. This ever increasing demand for mortgages seems in some ways to be against the expected trend of experts but, as we touched on above, there are other factors to consider.

Over the last few months we have seen a number of comments suggesting that the Bank of England may well be on the verge of increasing UK base rates from their historic low of 0.5%. Many had expected such a move before the end of 2015 but this seems increasingly unlikely especially when you bear in mind the fragile worldwide economy and specific issues such as Europe and the euro. As a consequence, it is extremely unlikely we will see any movement before 2016 and indeed some experts are sceptical whether we will see any movement in UK base rates during the next 12 months.

Fixed rate mortgages

Data from the industry confirms that around 90% of mortgages taken out over the last 12 months have been of a fixed rate nature. It seems that more and more house owners are now looking to protect themselves from a short to medium term increase in UK base rates. This is a very sensible move because at this moment in time not even the Bank of England has any idea when UK base rates will rise. While the fixed term nature of these agreements means that an increase in base rates will eventually lead to higher mortgages, the ability to fix the rate for the foreseeable future allows many to plan ahead.

It is also worth noting that while not huge jumps, we are seeing an increase in wages across the UK and when you set this against extremely low inflation, household incomes are rising slowly in real terms. This again strengthens the hand of those looking to acquire mortgages and ensures that there will be continuing demand for UK property for some time to come. Whether we will see investors moving from areas such as London to some of the more “value property markets” in the UK remains to be seen but recent reports suggest that value for money in the property market varies widely across the country.

Conclusion

Despite scepticism from some experts, house prices in the UK continue to rise, mortgage lending is now hitting new highs and with inflation relatively low and household income starting to rise, it seems that demand for UK property should continue for some time to come. It is interesting to see that 90% of new mortgages over the last 12 months have been of a fixed rate nature highlighting the fact that many are concerned about an increase in UK base rates in the short to medium term.

Each time the Bank of England seems to be approaching an increase in UK base rates there are further economic problems in other areas of the world adding more delays.