The pace of house price inflation picked up last month and is starting to match earnings growth according to the mortgage lender Nationwide.

House prices for the year to July increased 3.5% and month to month by 0.4% which was higher than the previous month with a fall of 0.2%, sending the price of the average home to £195,621 up from £195,055.

Nationwide’s chief economist Robert Gardner said house price growth is showing signs of stabilising close to the rate of earnings growth which is historically 4% per annum.

The continued rise in house prices means first time buyers would require a larger deposit or higher earnings to purchase their first home.

For home movers the gap between their current home and the next increases which means they need a larger mortgage requiring a higher household income or otherwise a larger deposit for the new home.

Help with the deposit for a new home can come from family members as the equity release buyer can access cash using a lifetime mortgage and give to a child or grandchild.

Stamp duty changes reduced bunching

The Chancellor George Osborne announced significant changes to Stamp Duty in the Autumn Statement last year, now it only applies to the amount of the purchase price that falls within a particular duty band.

It resulted in distortions in the market with clusters of sales just below the tax thresholds were paying £1 more for the property significantly increased the tax paid.

By replacing the old slab system there has been an immediate impact on smoothing out the distribution of transactions and less bunching around the £125,000, £250,000 and £500,000 tax thresholds.

According to the Land Registry, in the first six months of the year 235,000 purchasers in England & Wales have reduced the tax they pay by £275 million or £1,800 each.

Impact on London is greatest

Robert Gardner of Nationwide has said the benefits of the stamp duty changes are greatest in the South of England as house prices are higher.

About 85% of property transactions in London, South East and South West have gained from the changes compared to only 55% in the North, North West of England as well as Yorkshire and Humberside.

Even so about 2% of purchasers paid more stamp duty. About 5,000 home buyers of which two thirds are in London, paid an average of £28,000 more tax compared to the old slab system.

The future for house prices remains encouraging with recent employment and wage growth increasing. The current mortgage rates at record lows and demand for housing is likely to keep prices rising.

However, to sustain the recovery in the housing market new build constructions needs to pick up from the historically low levels.

One advantage of rising house prices for homeowners is remortgage buyers have the opportunity to release capital which they can use to improve their home. For buy-to-let landlords lenders would need a larger deposit or higher rental incomes to cover the interest payments.

What are your next steps?

Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.

Learn more by using the property value tracker chart, mortgage monthly cost calculator and equity release calculator. Start with a free mortgage quote or call us and we can take your details.

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property to consolidate debt, home improvements or holidays.

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