House prices increased by 0.6 per cent in October and ticked up to 3.9 per cent on an annual basis, according to Nationwide’s latest index.
Robert Gardner, the lender’s chief economist, said that over the past five months annual price growth has remained in a fairly narrow range between 3 and 4 per cent, broadly consistent with earnings growth over the longer term.
“While this bodes well for a sustainable increase in housing market activity, much will depend on whether building activity can keep pace with increasing demand,” he pointed out.
Nationwide stated that fixed rate mortgages have remained the most popular product type by a considerable margin, partly due to ongoing uncertainty about the precise timing of UK interest rate increases, as well as a desire to lock in low interest rates.
Mr Gardner explained: “The proportion of new mortgage lending contracted on fixed rates has been steadily increasing since the low point in 2010, when less than half of lending was on fixed rates. In recent months the proportion of lending accounted for by fixed rate deals has surpassed the levels prevailing before the financial crisis.”
In September the average two year fix - for those with a 25 per cent deposit - was 1.91 per cent, he continued, adding that for borrowers with a 10 per cent deposit, the rates available for two year fixes are currently the lowest on record.
As a result of fixed rate popularity, the proportion of outstanding mortgages on variable interest rates has declined steadily, from almost 70 per cent in mid-2012 to almost half in mid-2015.
“This should help to insulate many households from the impact of higher interest rates, though the proportion on variable rates is still higher than the 38 per cent prevailing in 2007,” commented Mr Gardner. “It is also important to note that the majority of recent fixes are for relatively short time periods - 65 per cent were for two years and 30 per cent for five years.”
Yesterday, data from the Land Registry revealed that the average house price in England and Wales now stands at £186,553 following a year-on-year increase of 5.3 per cent. The September figures showed a monthly price increase of 1 per cent since August, while London house prices saw a monthly increase of 1.8 per cent.