House price growth slows in the UK as market set to 'cool not crash'

House price growth slowed between June and July as uncertainty surrounding the vote for Brexit, affordability concerns, and tax hikes on property investors all weighed on the market. But the fundamental lack of supply in some areas continues to fuel rising prices.

The average UK house price grew 8.3% over the year to July 2016, down from an annual growth rate of 9.7% in June, said the Office for National Statistics (ONS). The average UK price stood at £217,000.

"House price pressures continued to grow in July, reflecting the strength of demand relative to supply in the housing market," stated the ONS. "However, there were indications that some of the heat had been taken out of the market, with several indicators pointing towards weaker housing demand and supply in recent months."

Month-on-month, the average UK price rose 0.4%. "This suggests that market demand remained relatively resilient after the Brexit vote, despite some slowdown in mortgage lending," said Thomas Fisher, an economist at PwC.

"However, as many of these transactions will have been in motion since before the referendum, more data will be needed to make a proper assessment of how the referendum result is affecting the housing market.

"Our own expectation is that the UK housing market will cool not crash. In our main scenario, average UK house price growth is projected to decelerate to around 5% in 2016 and around 1% in 2017."

Prices were growing most strongly in the East, London, and the South East. In the East of England, the average price rose 13.2% over the year to £237,806 in July 2016. London's average lifted 12.3% to £484,716. The South East grew 11.9% to £313,315.

The latest sales data, which is for May 2016, shows a sharp decline in transaction numbers across all countries of the UK in the run-up to the EU referendum on 23 June. In England, sales volumes dropped 33.5% over the year to May 2016, hitting 49,796; Wales was down 29.6% to 2,596; Scotland fell 16.8% to 7,131; and Northern Ireland, whose data is for the second quarter, dropped 21.6% to 4,075.

Though uncertainty surrounds the UK economy as it grapples with Brexit, housing demand should find support from ultra-low interest rates and schemes to aid first-time buyers, such as Help to Buy and shared ownership.

Moreover, there are reports of increased interest in UK property from overseas buyers following sterling's sharp decline in value against the US dollar, a fall sparked by Brexit. The currency benefit is being touted as an opportunity for foreign buyers to offset recent tax rises, including higher stamp duty for expensive homes, a 3% stamp duty surcharge on additional property purchases, and an annual levy on offshore-owned properties.

An ongoing lack of housing supply also plagues parts of England, in particular London and the South East. Estimates vary, but England and Wales is broadly thought to need 250,000 new housing units a year to meet demand. Government figures show that there were 142,390 completions in England and Wales in 2015, a 20% annual rise, but well below demand.

ONS house price index for July 2016 — regional breakdown

Average monthly price by property type

Number of sales by country (May 2016)