Residential property growth cooled in August amid early signs of the housing market losing momentum as the cost-of-living crisis continues to have an impact.

But annual growth remained in double digits, with the latest figures from Nationwide revealing that the average property currently costs in the region of £50,000 more than two years ago.

The building society’s house price index reveals that annual growth slowed to 10% in August, down from 11% in July. But prices were up 0.8% month-on-month, marking the 13th consecutive month that average prices have increased.

The supply-demand imbalance continues to have a major impact on the market, and will almost certainly push up asking prices in some parts of the country – at least in the short-term. The average property cost £273,751 in August, up more than £2,000 month-on-month.

But with pressure on household budgets expected to intensify in the coming months, while inflation continues to soar, this will inevitably have an adverse impact on house prices.

Robert Gardner, Nationwide’s chief economist, said: “There are signs that the housing market is losing some momentum, with surveyors reporting fewer new buyer inquiries in recent months and the number of mortgage approvals for house purchases falling below pre-pandemic levels.

“We expect the market to slow further as pressure on household budgets intensifies in the coming quarters, with inflation set remain in double digits into next year.

“Moreover, the Bank of England is widely expected to continue raising interest rates, which will also exert a cooling impact on the market if this feeds through to mortgage rates, which have already increased noticeably in recent months.”

Industry reaction:

Tom Bill, Head of UK Residential Research at Knight Frank commented: “The housing market is playing a slow game of catch up with the economy. As supply continues to build this autumn and mortgage rates rise, demand will soften and annual price growth will fall to single digits, although we don’t expect a cliff-edge moment. Stewardship of the economy under the new Prime Minister is now the key risk facing the property market. If unemployment stays low, inflation remains relatively contained and we avoid the Bank of England’s prediction of a recession lasting more than a year, prices should continue to rise modestly.”

Jeremy Leaf, north London estate agent, said: “Rises in the cost of living and interest rates are certainly making a difference but the latter has not filtered through to the figures yet, bearing in mind so many borrowers are on fixed-rate terms.”

Nicky Stevenson, MD at Fine & Country, commented: “Price gains continue to soften amid a squeeze on living standards and a decline in buyer affordability. Underlying demand remains robust though spiking energy bills and increased borrowing costs are having a gradual cooling effect which is expected to become more pronounced later in the year.

“While the pace of growth is no longer accelerating, demand continues to outstrip supply throughout most of the country and the desire to trade-up among existing homeowners remains strong.

“Ten successive months of double digit growth is remarkable, but we expect momentum to soften as recession looms larger.”

Stephen McCarron, president of NAEA Propertymark, said: “The market is continuing to soften but there is a long way to go yet before a significant change to prices because there are still more buyers than sellers.

“Our latest Housing Market Report shows the largest proportion of sales are being agreed at asking price.

“The shift away from the auction scenario of the past two years is because of mortgage rate rises and wider cost-of-living pressures. They are beginning to feed into buyer sentiment and creating some hesitancy, particularly among first-time buyers who are more likely to come out the market to wait to see what it does over the next year or so.”

Matthew Thompson, head of sales at Chestertons, commented: “Despite increasing interest rates and the cost of living crisis, August remained an incredibly busy month for London’s property market. The number of buyer enquiries alone has risen by 35% compared to August last year.

“One driving force behind the demand for homes is the return of professionals who are looking for a property closer to work. London is the business epicentre of the world and a third of businesses are now based in or around the capital. One in three jobs is created in London meaning demand for housing will always remain strong. We are witnessing this at our Canary Wharf and Hyde Park branches in particular but also across some of London’s commuter hotspots such as Islington.

“London’s housing market is underpinned by a chronic shortage of property and an increasing population which has surpassed the nine million mark. To house this amount of people, the capital only has 3.6million dwellings which cannot change by much as there is limited land to build on. The population however will continue to grow and boost demand further.”

Iain McKenzie, CEO of The Guild of Property Professionals, said: “With all the doom and gloom on the front pages recently, you would have thought that house prices would be going the opposite way, but it seems that the housing market doesn’t read the news.

“This is the thirteenth monthly rise in a row, with prices kept sky-high by limited housing supply on the market.

“The signs of a slowdown are growing, however, activity is starting to fall, at the same time as new mortgage approvals drop. Expected interest rate rises combined with soaring household costs will start to bite in the coming months.

“It’s almost difficult to believe that just two years ago the average house was worth £50,000 less than today. This house price growth is unlikely to continue but it still leaves many first-time buyers priced out of the market. Many people hoping to get on the ladder will have their fingers crossed that prices soften soon and allow them to take that first step.”

Lawrence Bowles, director of research at Savills, commented: “Annual house price growth slowed to 10.0% this August (down from 11.0% in July), according to data published this morning by Nationwide. However, this is more a reflection of the strength of last year’s market, rather than a more recent slowdown.

“Last August, house prices rose by 1.9% month-on-month, rebounding from -0.5% monthly price falls in July 2021, supported by a reduced, but still generous stamp duty holiday. That bumper month of growth fell out of this year’s annual figures. In its place, this August’s monthly growth figure was 0.9%, which is in line with the average monthly growth we’ve seen so far in 2022.

“As the year progresses, we expect to see rising mortgage rates and energy bills to temper the rate of house price growth. We’ve predicted average house prices will rise by 7.5% over the course of 2022 as a whole.

“Given how crucial rising energy bills are becoming in households’ finances, we expect to see values widen slightly between different property types, with prices for well-insulated, highly energy efficient properties likely to perform best over the coming months.”