UK house prices rise by most since Dec 2022, Nationwide data shows

By David Milliken

LONDON (Reuters) -British house prices were 2.1% higher than a year earlier in July, the biggest annual increase since December 2022, although they are still below peaks reached earlier that year, figures from Nationwide Building Society showed on Thursday.

Prices rose 0.3% in July alone to an average of 266,334 pounds ($341,706), and both the monthly and annual increases were slightly greater than economists had forecast in a Reuters poll.

The figures come shortly before the Bank of England is due to announce its August interest rate decision, which many economists think will see interest rates cut from the 16-year high where they have been for almost a year.

"Investors expect Bank Rate to be lowered modestly ... which, if correct, will help to bring down borrowing costs," Nationwide Chief Economist Robert Gardner said.

"However, the impact is likely to be fairly modest as the swap rates which underpin fixed-rate mortgage pricing already embody expectations that interest rates will decline in the years ahead," he added.

British house prices in July were 2.8% below the peak reached in the summer of 2022, Nationwide said.

House prices surged by 25% between the start of the COVID-19 pandemic - which spurred demand for more spacious homes in many Western countries - and September 2022, when a bond market slump under then-Prime Minister Liz Truss led to a temporary dearth in mortgage finance.

Prices have largely plateaued since, as BoE rates rose and then stayed high to tackle a surge in consumer price inflation following the pandemic and Russia's invasion of Ukraine.

Nationwide, Britain's second-largest mortgage lender, said the typical monthly mortgage payment was now 37% of take-home pay, well above the 28% just before the pandemic and a long-run average of about 30%.

"Affordability is likely to improve only gradually through a combination of wage growth outpacing house price growth - which is expected to remain fairly flat - with some support from modestly lower borrowing costs," Gardner said.

($1 = 0.7794 pounds)

(Reporting by David Milliken; editing by William James and Andrew Heavens)