Increase in UK house prices may spell ‘false dawn’ for property market, experts warn

A solid monthly increase in UK house prices doesn’t necessarily spell great news for the property market in the longer term, with Nationwide warning of a “false dawn”.

The building society’s latest house price index showed a 1.7 per cent increase in prices during July, following a 1.6 per cent fall in June.

Robert Gardner, Nationwide’s chief economist, said the bounce back reflects the “unexpectedly rapid” recovery in activity since lockdown restrictions were eased.

He credited pent up demand due to the market freeze for this, combined with lockdown-induced behavioural shifts causing people to reassess their housing preferences.

While Gardner said these trends look set to continue in the near future, he added there is “a risk this proves to be something of a false dawn”.

With most forecasters predicting a weakening of labour market conditions as furlough and mortgage holidays draw to a close, more redundancies are likely to take place.

“Most forecasters expect labour market conditions to weaken significantly in the quarters ahead as a result of the after effects of the pandemic and as government support schemes wind down,” Gardner added.

“If this comes to pass, it would likely dampen housing activity once again in the quarters ahead.”

Hansen Lu, property economist at Capital Economics, said that the bounce back in prices seen in July spelt mostly good news for the market.

He said: “Along with the pickup in lending in June, this reinforces our view that a house price crash is now unlikely.

“Although, with the mortgage holiday and furlough schemes due to end soon, further modest price falls may still be on the horizon.”