House price growth continued in July despite cost of living fears

House prices rose 1.2% between June and July this year, according to the government’s official measure of UK prices, helping to push average annual inflation to its highest level for almost 20 years.

The Office of National Statistics (ONS) said that annual house price inflation in the year to July was 15.5%, a jump from 7.8% in June, with the size of the increase largely a result of big falls in house prices registered in the month last year, in the wake of the partial closure of the temporary stamp duty exemptions introduced by former chancellor Rishi Sunak.

However, the increase was exacerbated by a 1.2% seasonally adjusted increase in prices seen between June and July, recorded despite signs from other indicators that house price growth has been moderating.

The 15.5% increase was the biggest seen since May 2003, the ONS said, and comes despite rising interest rates and fears over the impact of inflation and a stuttering economy.

Mortgage lender Halifax reported a slight drop in prices in July, while both the Nationwide and Zoopla recorded broadly flat house prices.

In addition, in a series of market updates this week, housebuilders Barratt, Vistry and Redrow have said market demand has moderated since June to more historically normal levels.

The figures came as Savills released its latest client survey showing that buyers were starting to reduce their budgets in the wake of rising interest rates and tightening affordability. It said 29% of its prospective buyers had reduced their budgets due to the increased cost of living.

Frances McDonald, research analyst at Savills, said: “Despite transactions remaining robust over the summer months, there’s now certainly less urgency in the market, with rising costs of debt impinging on the budgets of those most reliant on a mortgage. Increased costs of living are also making buyers much more conscious when it comes to how much they are willing to spend.”

Simon McCulloch, chief commercial and growth officer at house moving consultant Smoove, said: “July’s figures demonstrate the underlying strength of the UK housing market. While the cost-of-living crisis and associated Bank of England interest rate hikes continues to impact activity, the new administration’s decision to cap energy bills until 2024 will likely boost confidence, particularly around affordability criteria.

“The dynamics of the UK property market continue to be determined to some extent by a lack of supply, which should prop up prices to a degree even in the event of a prolonged recession.”