UK house prices: Lack of supply will prop up property values despite Brexit

Nationwide has said the average UK house price rose by 0.2% over the month of June 2016 ahead of the historic EU referendum on 23 June, in which Britain voted to leave the 28-member state bloc.

The building society's monthly index said the average house price hit £204,968, a 5.1% increase over the year.

"Ultimately, conditions in the housing market will be determined by conditions in the wider economy, especially the labour market," said Robert Gardner, Nationwide's chief economist. "It is too early to assess the impact of the referendum vote on the economy.

"However, it is encouraging that the labour market had remained robust in recent months, with solid employment growth and the unemployment rate declining to an 11-year low in April. Borrowing costs also remained close to historic lows.

"Moreover, the lack of homes on the market – with estate agents continuing to report a record low number of properties on their books – will also provide underlying support for prices even if demand softens."

Uncertainty about the referendum result ahead of the 23 June vote, in which Britons chose by 52% to 48% to leave the EU, had softened the property market. As a result of the Brexit vote, which has plunged the country into political crisis, some economists expect the UK economy to fall into recession by the end of the year. A Treasury analysis before the referendum predicted that a severe economic shock from Brexit could cut house prices by as much as 18%.

The collapse in housebuilder share prices after the referendum implies a 5% fall in house prices over the coming year, said Samuel Tombs, chief UK economist at Pantheon Economics. Markets are pricing in a potential mini-credit crunch, which would make mortgages more expensive and so curb demand for homes.

"It's a very volatile situation and the markets will move very quickly with the politics, which is fluid," Tombs said. "This could look very different in a couple of weeks' time. But as things stand, the markets are certainly factoring in a decent fall in house prices next year."