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House price inflation at nine-year low

House prices rose by 0.2 per cent in July, reversing the previous month’s fall, but annual house price inflation is at its lowest for nine years, says the Nationwide house price report.

Nationwide says annual house price inflation fell to 2.6 per cent in July, its lowest rate since May 1996. This compares with 4.1 per cent last month and 20 per cent in July 2004.

Annual house price growth is now lower than wage growth for the first time since 1996.

Nationwide says the market is showing signs of recovery, such as an increase in approvals, but economic uncertainty makes it difficult to read.

Its report says the expected cut in interest rates next month will stimulate the market through its impact on affordability. But this is unlikely to accelerate the rate of growth at this point in the economic cycle, especially if labour market conditions worsen.

It says the London terrorist attacks could play a role by affecting economic confidence. It says while the first attacks had little effect, the second attacks and threat of more incidents may impact on the market.

Group economist Fionnuala Earley says: “House prices bounced back in July, increasing by 0.2 per cent and reversing the fall in June. However, the overall picture remains one of a gently softening market.”

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