LONDON (BLOOMBERG) – House prices in Britain barely rose in July, an indication that the property market is cooling in response to the worsening cost-of-living crisis.

The 0.1 per cent gain from June was the weakest reading for a year, the Nationwide Building Society said on Tuesday (Aug 2). Values rose 11 per cent from a year earlier to £271,209 (S$457,000).

The housing market boomed during the Covid-19 pandemic, and values continue to be underpinned by a shortage of homes for sale and the lowest unemployment since the 1970s, Nationwide said. House prices are now in their longest run of gains for eight years.

However, surging inflation and rising mortgage interest costs are starting to take a toll.

Bank of England figures last week showed that mortgage approvals fell further below their pre-pandemic levels in June as lenders raised interest rates to their highest level since 2016.

Home owners are facing another jump in borrowing costs this week, with the central bank expected to step up the fight against inflation by delivering its first half-point rate increase in 27 years.

“We continue to expect the market to slow as pressure on household budgets intensifies in the coming quarters, with inflation set to reach double digits towards the end of the year,” said Nationwide chief economist Robert Gardner.

Lloyds Banking Group, the biggest British mortgage lender, last month downgraded its outlook, predicting that house prices will grow just 1.8 per cent this year and fall 1.4 per cent in 2023.

Nationwide said the number of housing transactions has plunged 20 per cent from its peak last year, when the government eased taxes on purchases temporarily. The number of sales remains 5 per cent above pre-pandemic levels.

Demand from first-time buyers is holding up, but those moving from another property are declining. The market also is benefiting from investors seeking to cash in on a surge in rents.

“Buy-to-let purchases involving a mortgage also remain higher than pre-pandemic levels,” Mr Gardner said. “Sentiment is likely buoyed by the fact that rental demand remains strong, with upward pressure on rents, which may be encouraging landlords to enter the market, particularly if they view property as a hedge against inflation.”