Nationwide Building Society has said there could be a “cooling” of the UK’s red-hot housing market because of rising inflation and interest rates.
Robert Gardner, the chief economist at the UK’s second-largest mortgage lender, said the housing market is currently “remarkably robust” despite the end of incentives such as the government’s stamp duty holiday at the end of September.
However, he said that in the coming months a lot would depend on the performance of the wider economy.
“There are a few things that could moderate [housing demand] a bit in the coming quarters. For example, there are not many homes on the market at the moment. That is likely to hold back activity.
“If you look at rising inflation squeezing household budgets a little and if interest rates rise, then that is likely to exert a cooling influence as well. But if the recovery holds up, then activity is likely to remain pretty solid.”
Earlier this month, Halifax said house prices had hit a new record high in October, climbing above an average of £270,000 for the first time.
However, while the Bank of England this month decided to keep interest rates at a historic low of 0.1%, it could raise borrowing costs as early as December, against a backdrop of falling unemployment and higher inflation.
Last month the Bank’s chief economist, Huw Pill, said he expected to see inflation top 5% by early next year.
Earlier this week, the Office for National Statistics reported that inflation in October hit its highest level in a decade. A sharp increase in gas and electricity prices pushed up inflation – as measured by the consumer prices index – to 4.2%, up from 3.1% in September, the highest rate since November 2011. The Bank of England’s official target for inflation is 2%.
Gardner made his comments as Nationwide reported that profits for its half-year to the end of September more than doubled to £853m compared with £361m the previous year.
Nationwide said it had benefited by continuing to lend during the early stages of the coronavirus pandemic, while others stopped. Profits were also boosted by the release of £34m that had been set aside to cover possible losses caused by Covid-19 that did not materialise.
Joe Garner, Nationwide’s chief executive, said its policy of allowing its 13,000 office-based staff to work from anywhere in the UK was faring “tremendously well”.
He said: “We continue to see enhanced productivity. The area we are paying careful attention to is how to build culture and cohesion [with staff remote working].”
Nationwide said it operates about 650 branches across the UK backed by a pledge to keep at least one in every town or city until at least 2023. Sara Bennison, Nationwide’s chief product and marketing officer, said the society had closed 5% of its branches in the last five years compared with an average of 30% by high street banking rivals.
Garner has expressed a desire to step down as chief executive but on Friday said there was no update on succession plans.
“I remain entirely focused on leading Nationwide and will until the very last second,” he said.