House price growth increased for the first time in two months as Nationwide warns households with big debts may struggle if interest rates are hiked today.

The Nationwide House Price Index for July showed property values had increased by 2.5% on average to £217,010, up from 2% in June.

Price growth had previously been slowing since April.

Robert Gardner, chief economist at Nationwide, said growth would depend on the broader economic conditions, especially in the labour market, but also with respect to interest rates.

He said: “Providing the economy does not weaken further, the impact of a further small rise in interest rates on UK households is likely to be modest.

“This is partly because only a relatively small proportion of borrowers will be directly impacted by the change

“While the impact for most borrowers is likely to be modest, it’s important to note that household budgets have been under pressure for some time because wages have not been rising as fast as the cost of living. Indeed, in real terms wage rates are still at levels prevailing in 2005.

“Moreover, a small proportion of households already have a relatively high debt service burden.

“For example, the English Housing Survey suggests that around 12% of home owners already spend over 30% of their gross income on their mortgage each month. And, for those, some of whom will be on variable rates, any rate rise will be a struggle, even though the impact on the wider economy and most households is likely to be modest.”

Commenting on the data, Lucy Pendleton, founder director of James Pendleton estate agents, said: “Rate rises at this level are more psychological than any other, but even if the guidance says rates will remain low, the experts have been wrong before and buyers are prone to being overly cautious.

“Buyers think five years ahead and, when buying a house, focus on how secure their job is and what their income multiple is. They are very much aware that the end of their fixed term deals will arrive quicker than they’d like.

“The truth is that the fundamentals of Britain’s housing market have been little affected by Brexit.

“London has continued to suck in overseas cash, and the market in the capital has risen the quickest and will fall the fastest, which is what it is doing. The only people shocked by this are the same people who throw a ball in the air and act surprised when it hits them on the nose.

“A rise in rates is what will really focus minds, so that’s still the one to watch.”