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House price inflation falls

After reporting surprisingly strong house price growth for June of 1.1%, Nationwide has found prices practically unchanged in July, growing by just 0.1% in a month. The lender says this is the smallest month-on-month increase recorded since April last year. The annual growth rate has also fallen back below 10% in July, dropping from 11.1% to 9.9%, according to these figures.

A typical UK property cost an average of £184,270, says the report, which is £16,537 more than a year ago, while the three month-on three-month rate of growth, apparently a better indicator of underlying trends, slowed to just 2.0%.

As a result of these figures and a continuing expectation that interest rates are set to hit 6% this year, a slowdown in the economy is expected in coming months, says Nationwide, although it doesn?t seem to have taken place yet.

?The Bank of England now faces a tough balancing act looking ahead, with tightening consumer finances on the one hand and resilient economic growth on the other,? said Fionnuala Earley Nationwide chief economist. ?Fundamentals do suggest that household finances are coming under considerable pressure, and that house prices and consumer spending will both see a slowdown in the second half of the year.

?The sharp slowdown in July?s house price numbers could show that potential homebuyers are thinking twice about overstretching themselves in a higher interest rate environment,? she continued.

?With another rate hike looking likely, affordability problems will only get worse,? predicted Seema Shah from Capital Economics. ?As such we expect the recent cooling in activity levels and house price growth to intensify over the remainder of 2007.?