The housing market retained a surprising degree of momentum in July, despite the mounting pressures on household budgets, according to an index.

Annual UK house price growth accelerated slightly in July to 11.0%, from 10.7% in June, according to Nationwide Building Society, which added that it expects the market to slow in the months ahead.

Prices were up by 0.1% month on month, marking the 12th monthly increase on this measure in a row.

The average house price in July was £271,209.

Robert Gardner, Nationwide’s chief economist, said: “The housing market has retained a surprising degree of momentum given the mounting pressures on household budgets from high inflation, which has already driven consumer confidence to all-time lows.

“While there are tentative signs of a slowdown in activity, with a dip in the number of mortgage approvals for house purchases in June, this has yet to feed through to price growth.

“Demand continues to be supported by strong labour market conditions, where the unemployment rate remains near 50-year lows and with the number of job vacancies close to record highs.

“At the same time, the limited stock of homes on the market has helped keep upward pressure on house prices.

“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.

“Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.”

Mr Gardner said transactions among home-movers with a mortgage have slowed more than other sectors.

This probably reflects the recent stamp duty holiday, which ended last year, encouraging home-movers to bring forward purchases at that time, he said.

He continued: “First-time buyer mortgage completions have remained resilient, and are now (around) 5% above pre-pandemic levels, despite growing affordability pressures.

“Indeed, house price growth has continued to outpace earnings by a wide margin, increasing the deposit hurdle, and, together with higher interest rates, has pushed up mortgage repayments relative to incomes.

“The number of cash transactions has remained elevated, though its share of activity has remained broadly stable at (around) 35%.

“This is partly a reflection of an ageing population (where more people own their homes outright).

“However, properties purchased for investment, such as a holiday home or buy-to-let, is also an important element of the cash market.

“Buy-to-let purchases involving a mortgage also remain higher than pre-pandemic levels.

“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.”

Alice Haine, personal finance analyst at Bestinvest, said that, with a further Bank of England base rate hike expected later this week, “this should have a dampening effect on the market”.

She continued: “Add in the barrage of challenges to come – from the surge in energy prices in October, when the energy watchdog increases the cap on bills, to runaway inflation continuing to outstrip wage growth – and the pressure on household finances will only intensify, potentially placing even more pressure on the property sector.”

Tom Bill, head of UK residential research at Knight Frank, said: “For those wondering how house prices can continue to grow as the cost-of-living squeeze intensifies, the answer is that they are happening for the same reason – a supply chain disruption.”

Nathan Emerson, chief executive of Propertymark, which represents estate and letting agents, said: “The market has been relentless for the past two years. Our member agents are telling us that they are now beginning to see the signs of a return to a normal seasonal trend when the market slows down in the summer months.

“But year-on-year price growth is still high and, despite the rising cost-of-living, all indications are for that to continue for some time yet, while it remains cheap to borrow money and with the number of buyers still outnumbering properties available.”

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, suggested the ongoing surge in mortgage rates will cause buyer demand to cool further.

She said: “The rate for a two-year 75% LTV (loan-to-value) fixed-rate mortgage already has increased to 2.88% in June from 1.57% in December – the fastest six-monthly increase since at least 1995 – and looks set to rise to around 3.1% by the end of the year, if the MPC (Bank of England Monetary Policy Committee) delivers the rate hikes that markets currently expect.”

Iain McKenzie, chief executive of the Guild of Property Professionals, said: “Over the past month the number of buyer inquiries has started to subside, and we are seeing a more balanced sales market that could mean we will see house price growth cool.

“While homeowners have seen the value of their property grow substantially, increasing financial pressure from cost-of-living inflation has many hesitant about upscaling and some potential movers are now deciding to stay put.”

SIMON LAMBERT: House prices look like they are soaring despite rate rises... but to take the property market's temperature look at what's not selling

House prices are still rising at a rate of knots but some estate agents say the hints of a slowdown are already here.

Look at the figures and property inflation is rampant: this week, Nationwide said house prices were up 11 per cent in the year to July.

That’s even higher than the consumer prices inflation behind the cost-of-living crisis, for which the latest reading from the ONS came in at 9.4 per cent for June.

But while it may seem surprising that house prices are still climbing in the face of a dramatic escalation in mortgage costs - as interest rates are hiked to combat way above target inflation - there is talk that the market has already lost its head of steam.

Alongside the Nationwide figures came some comments from estate agents saying that the market had softened.

There was no doom and gloom, of course, merely talk of a gentle easing of pressure, but bear in mind that’s a reasonably bearish outlook from this traditionally bullish profession.

These views are just snapshots of opinion of what’s happening, but it’s worth keeping an eye on these in a market where measuring changes in direction is much harder than somewhere that it’s easy to track, such as the stock market.

And when it comes to the property market it’s not just the headline big house price report numbers you should look at, it’s also worth keeping an eye on what’s going on near you or where you’d like to buy.

This will provide a guide to the most relevant thing to you: be that a passive interest in whether your home has gone up or down in value, or an active interest in whether you can afford to buy a home or move.

While house price index reports make the headlines, they don’t provide the best pointer to what is happening.

The average UK home that they track is a construct and not a representation of something that really exists: the average property near me is different to one near you.

Meanwhile, the overall UK property market is made up of lots of different individual pockets that don’t always move together.

In a broad sense, this can be talked about as the North-South divide, London vs the rest, the commuter belt vs the regions, or in many other ways.

But in a narrower sense, you can get markets behaving differently in two places close together. As an example, the towns where I live in Hertfordshire often don’t take the same tack as nearby Luton.

Looking at where you live won’t give you the full picture of what’s going on in the property market across the UK, but it will give you a good idea of what’s happening where it matters to you.

Depending on how interested you are – and I’ll admit I am a bit of a property nerd here - you can keep an eye on asking prices, what places sell for, and how much or little is coming to the market.

But there’s another tip I’d give: if you really want to take the temperature of a local property market look at what isn’t selling.

This is something that us armchair property anecdotalists can do but house price indices can’t, as they are based on sale prices, asking prices, mortgage completion figures etc.

Yet, watching what sells and what doesn’t is the best guide to property sentiment and where the direction might be headed.

When you think ‘that’s a crazy price’ and stuff still sells, the market is going great guns.

When you see homes coming up for sale for more than the last batch and think ‘how much?’ and they still sell, the market is doing well.

But when you start to see only some of the better high-priced stuff selling and after that shift towards only what seems fairly priced for its attributes going under offer, you can see the heat coming out.

When the reduced labels start hitting Rightmove en-masse you know that stuff is definitely on the slide. 

And you can tell a market’s in real trouble when homes start to seem good value and still don't sell.

On that note, from my property watching near me, we’ve moved from the first and second scenario above towards the third.

The market is still in decent shape, but it’s come off the boil compared to the madness of the pandemic boom.

That’s to be expected: mortgage rates have leapt since the start of the year, with the average five-year fix climbing from 1.55 per cent to 3.5 per cent, potentially adding hundreds of pounds to the monthly cost of buying the same home. 

Eventually, this will have an effect and you can check how much it would cost you with our best mortgage rates comparison calculator.

A hint of a slowdown showed up in the Nationwide report too, with the building society saying that while cash buyers remained strong, mortgaged buyers had slipped by more since the end of the stamp duty holiday.

I'd expect this trend to continue, as the rapid escalation of mortgage rates bites. 

So, maybe it’s worth watching who isn’t buying as well as what’s not selling.