The market has shrugged off August?s interest rate rise and continued to strengthen, according to new data from Nationwide. The building society?s September report shows a 1.3% increase in house prices, bringing the annual rate to 8.2% – the fastest since February 2005. ?Just like the weather, the housing market was unseasonably warm in September as August?s interest rate hike did nothing to cool the rate of house price inflation,? said Fionnuala Earley, Nationwide’s Group Economist.
Demand for houses has been strengthening rapidly since July, with house purchase approval almost 20% above average. Agents across Britain are reporting strong new buyer enquiries, says Nationwide, but a lack of supply is increasing price pressures.
?High prices and little room for price negotiation could mean that many of these new enquiries do not come to fruition, but up until now new buyers have found both the appetite and the ability to overcome the affordability hurdle,? Mr Earley commented.
Property experts are uncertain whether the full impact of the interest rate rise has yet been felt and are thus reluctant to make a definitive forecast on the housing market in the coming months. ?After all, the lags involved in the home buying process mean that a quarter point rise in interest rates is more likely to deter someone who is still thinking about moving house than someone who has already embarked on the process,? explained Ed Stansfield from Capital Economics, ?Only once we see how new buyer enquiries and mortgage approvals behave over the next two to three months will we really see how robust the market is?.
According to Mr Stansfield, a further interest rate rise in November (which is widely expected) will put further pressure on affordability and could result in a subdued start to 2007.