House prices rise 5% a year in more bad news for would-be buyers

Figure is twice that of pay settlements across the country and comes amid a rise in inflation

The rate of house price growth increased to 5% in August, according to official government figures, pushing homes further out of the reach of aspiring young buyers already squeezed by rising inflation.

The average UK house price rose by £1,000 in August to reach £226,000, the Office for National Statistics (ONS) said. The increase took the annualised rate of house price inflation to 5%, up from 4.5% in July and more than double the rate of pay settlements across the country.

The biggest increase in prices was in the north-west of England, where values were up 6.5% in the year to August 2017. The east of England, east Midlands and south-west all saw rises of 6.4%.

But price rises have slowed to a crawl in London, which had the lowest regional increase with a gain of 2.6%.

Prices in the City of London, the heart of the capital’s financial district, fell by 5.6% over the year, the biggest fall in the UK apart from Aberdeenshire. While the low oil price has hit communities dependent on the North Sea oil industry, Brexit is believed to have affected prices in the capital.

However the ONS figures underline the enormous differences in property prices across the UK. In August 2017, the most expensive borough to live in in the UK was Kensington and Chelsea, where the cost of an average house was £1.2m. In contrast, the cheapest area to purchase a property was Blaenau Gwent, where an average house cost £82,000.

Property market experts blamed a failure to build sufficient houses for the continuing rise in prices despite falling real incomes.

Jeremy Duncombe, of Legal & General Mortgage Club, said: “Annual prices are consistently rising as more buyers chase fewer properties. Escalated by a critical lack of housing stock, this trend is only set to continue if more affordable housing is not built. As speculation around the autumn budget begins to build up, we hope there will be a genuine answer to boost supply that gives everyone a realistic chance to own a home.”

Even buy-to-let promoters, which traditionally argue in favour of higher house prices, said the current rate of inflation was leaving young people excluded from the market.

John Goodall, of the buy-to-let specialist Landbay, said: “Although record low mortgage rates will be helping those who have already stumped up a deposit, escalating house prices will come as yet another blow to aspiring homeowners looking to get their foot on the housing ladder.

“It is essential that the government doesn’t lose focus on addressing the housing crisis and makes good on its promise to build the thousands of new, affordable homes that people desperately need.”

The drop in the London house price inflation figure to 2.6% means that prices in the capital are falling in real terms, compared with today’s 3% inflation figure.

Richard Snook, senior economist at PwC, said: “The uncertainty over Brexit may be felt more keenly in London than other areas due to the importance of international businesses.”

Rising mortgage rates – and the possibility of an interest rate rise from the Bank of England to quell inflation – are likely to dampen further house price rises. In recent weeks many of the major mortgage providers have increased the price of two-year and five-year fixed-rate deals in anticipation of an official rate rise.


Patrick Collinson

The GuardianTramp

Related Content

Article image
Why UK house prices could plunge by 20% after the latest interest rate hike
Property market has defied gravity for years but analysts say rising mortgage rates will mirror the 1980s price crash

Larry Elliott Economics editor

28, Jan, 2023 @8:00 AM

Article image
UK house prices drop for first time this year, says Rightmove
Experts blame 1.3% average fall on summer distractions rather than economic factors

Kalyeena Makortoff

14, Aug, 2022 @11:01 PM

Article image
UK house prices flatlining as mortgage rates rise, says Nationwide
Lender says slowdown will intensify in coming months as household budgets come under more pressure

Mark Sweney

30, Sep, 2022 @10:41 AM

Article image
Zero house price inflation is to be welcomed not feared | Larry Elliott
Stalling property prices are a chance to rebalance the UK economy towards manufacturing and exports

Larry Elliott

09, Apr, 2017 @11:10 AM

Article image
The Brexit economy: looming rate rise clouds outlook as inflation dips
‘The beast from the east’ blew the UK economy off course, further complicating an already complex picture

Richard Partington

26, Apr, 2018 @12:21 PM

Article image
Bank of England interest rate rise – what it means for borrowers and savers
Rate rise to 3.5% affects everything from mortgages to credit cards, loans and savings. Here is all you need to know

Rupert Jones

15, Dec, 2022 @1:27 PM

Article image
UK house prices fall for first time since June 2021, says Halifax
Market cools in July as lender warns of impact of higher interest rates and cost of living crisis

Mark Sweney

05, Aug, 2022 @7:01 AM

Article image
House prices rise at slowest rate in six years as Brexit hits growth
London experiences biggest slump in a decade but Midlands and north-west race ahead

Richard Partington

17, Apr, 2019 @4:29 PM

Article image
House prices rise to end year where they began, reports Nationwide
Nationwide reports surprise rise in December – but no sign that trend will turn upward

Graeme Wearden

31, Dec, 2010 @1:24 PM

Article image
Policymakers right to be worried as UK housing boom shows no sign of waning | Larry Elliott
But situation needs looking at in global context because it is not a story of British exceptionalism

Larry Elliott

17, Apr, 2022 @10:06 AM