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Market volatility no threat to short term house prices, says Nationwide

Nationwide claims it’s not market volatility that is likely to affect UK house prices in the short term, but rather weaker affordability, higher interest rates and inflation and lower house price expectations.

Nationwide’s chief economist Fionnuala Earley says the rate of house price growth has increased during August, but the annual rate decreased slightly.

She says: “Prices increased by 0.6 per cent during the month, but the annual rate fell to 9.6 per cent down from 9.9 per cent in July. A typical UK property cost an average of £183,898 in August, £16,177 more than one year ago.”

Earley says the US sub-prime crisis has created turmoil in international financial markets, but it is unlikely to have a significant additional effect on the rate of house price growth in the UK in the short term.

She says: “We still expect house price growth in 2007 to come in close to the middle of our forecast range of between 5 per cent and 8 per cent. The expected slowing results from three main factors, each of which have been around for some time. First, weaker affordability, as house prices continue to grow more quickly than earnings; second the effect of higher interest rates and inflation on consumers’ pockets; and third lower house price expectations.

“Whether the fall out from the US sub-prime crisis will have a more severe impact on the housing market longer term will depend on how long it takes for market jitters to settle.”

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