Nationwide records 1% increase in October bringing the average home to £173,678
The housing market continued to gain momentum in October, with the annual rate of price inflation increasing to 5.8%, its highest level in over three years, according to figures from the UK's largest building society.
In the latest of a series of indications that government efforts to boost homebuying have had an impact, Nationwide's latest monthly index showed a 1% increase in house prices during October, bringing the average cost of a UK home to £173,678. This is almost £10,000 more than at the end of 2012, and represents a 2.5% increase over the past three months.
The figures cover a period since the launch of the second part of the government's controversial Help to Buy scheme. They are based on approvals for Nationwide loans and the society has so far not signed up to Help to Buy, but the scheme could have contributed to pushing up the prices paid by its customers.
Nationwide's chief economist, Robert Gardner, said growing confidence in the wider economy, combined with government stimulus, had led to the rise much more quickly in the second half of the year than in the first, when annual inflation was running at around 1%.
"The UK housing market appears to be following the more resilient upward trend evident in the wider economy in recent quarters," said Gardner.
"The ability and willingness of potential buyers to transact has been steadily increasing. The ability to buy has been supported by continued gains in employment and policy measures such as the Help to Buy and Funding for Lending schemes, which have improved the availability and lowered the cost of credit."
Funding for Lending has been credited with making lenders more willing to offer cheap home loans and to lift some of their restrictions on high loan to value (LTV) mortgages, while Help to Buy assists borrowers with deposits of as little as 5% to put down.
The second part of the scheme, which offers a taxpayer-backed guarantee to lenders offering 95% mortgages, launched in early October.
The society said on a national level, prices remained around 7% below their 2007 peak and that monthly mortgage repayments for first-time buyers were around 29% of take-home pay, in line with the long-term average.
However, Gardner warned that the growth in demand from buyers had picked up more quickly than the supply of new homes, which could cause problems further down the line. Figures released by the Bank of England on Tuesday showed mortgage approvals reached their highest level in five years in September, and the most recent report from the Royal Institution of Chartered Surveyors showed growing numbers of homebuyers entering the market.
"The risk is that if demand continues to strengthen while the supply of property remains constrained affordability could become stretched," Gardner said.
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