Britain's house prices will not stop rising until earnings do
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However, the British lender added that while annual house price growth is now "running at less than half the pace prevailing in mid-2014," UK property prices will continue to soar as long as earnings keep rising.
"The annual pace of house price growth slowed to 4.6% in May," said Robert Gardner, Nationwide's Chief Economist, in a statement. "This resumes the gradual downward trend that had been in evidence since the summer of 2014, which was briefly interrupted in April when price growth edged up to 5.2% from 5.1% in March."
"Annual house price growth is now running at less than half the pace prevailing in mid-2014. Over the longer term we would expect house price growth to converge with earnings growth, which has typically been around 4% per annum. However, much will depend on supply side developments - in recent years the rate of building activity has remained well below that required to keep up with population growth."
A Reuters poll of economists forecast a 2.6% rise in wages this year and a 3.4% rise in 2016.
The Confederation of British Industry (CBI) warned last year that 240,000 properties need to be built annually, in order to accommodate rising demand across the country. Unfortunately, over the last 14 years, only 200,000 homes have been delivered annually in four periods.
British property prices have also surged 56% since 2004, and by over 90% in London.
The number of people being approved to buy home is also rising, meaning that price wars for residential properties will continue to wage.
This week, the Bank of England revealed that mortgage approvals rose to their highest level for 14 months in April.
In April, 68,706 were approved, which marks a 10% rise in the number of mortgages approved for house purchases from March. This is the biggest month-on-month increase since 2009.
Meanwhile, Nationwide highlighted in its report today that cash transactions remain relatively high, meaning that the other side of the buyers market continues to be buoyant.
"We estimate that the share of cash purchases in the housing market reached an all-time high of 38% in Q1 2015," said Gardner. "Continued healthy demand from cash buyers has helped to support transaction levels in recent quarters, since mortgage lending has remained relatively subdued."
Nationwide
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