According to the figures, prices rose 0.6% month-on-month with the average price of a home in the UK now standing at £217,000.
The society commented ahead tomorrow's BoE announcement that any rate hike would likely have a 'modest impact' on UK households.
Robert Gardner, Nationwide's Chief Economist, said: “There was a slight uptick in annual house price growth in July to 2.5%, from 2.0% in June. Nonetheless, annual house price growth remains within the fairly narrow range of c2-3% which has prevailed over the past 12 months, suggesting little change in the balance between demand and supply in the market.
Looking further ahead, much will depend on how broader economic conditions evolve, especially in the labour market, but also with respect to interest rates. Subdued economic activity and ongoing pressure on household budgets is likely to continue to exert a modest drag on housing market activity and house price growth this year, though borrowing costs are likely to remain low.
Overall, we continue to expect house prices to rise by around 1% over the course of 2018.
How much of a squeeze would an increase in rates exert on households?
It is looking increasing likely that the Bank of England’s Monetary Policy Committee (MPC) will increase rates at their next meeting on 2nd August. Clearly, much will depend on the Committees’ assessment of the outlook for growth and inflation, but most economists and investors expect Bank Rate to be increased from 0.5% to 0.75%.
Providing the economy does not weaken further, the impact of a further small rise in interest rates on UK households is likely to be modest."
As ever, the property industry was quick to react. Here's what they're saying:
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: "The slow growth in prices, which we have seen over the past few months, is continuing. Supply and demand remain broadly in line and the shortage of stock, as well as low interest and jobless rates, prevent a larger fall.
This balance is likely to be disturbed by even a modest increase in mortgage rates, even though relatively few borrowers will be affected by the change as they are on fixed-rate mortgages. But the direction of travel always seems to have an adverse impact on confidence and is likely to reduce low levels of transactions even further.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: "There is much anticipation that the Bank of England will raise interest rates this month and if it does, this will inevitably have an impact on the housing market.
It is true that many borrowers have been taking advantage of the competitively-priced fixed rates available and protecting their monthly payments against future rate rises. But there are those mortgage prisoners on their lender’s standard variable rate who will feel the full impact of any rate rise.
The good news is that lenders committed this week to helping those borrowers and offering them a cheaper deal. It might not be the cheapest on the market, and they still won’t be able to remortgage to another lender, but they should pay less, which is a step in the right direction, particularly if the trend in base rate is upwards."
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: "There is much anticipation that the Bank of England will raise interest rates this month and if it does, this will inevitably have an impact on the housing market.
It is true that many borrowers have been taking advantage of the competitively-priced fixed rates available and protecting their monthly payments against future rate rises. But there are those mortgage prisoners on their lender’s standard variable rate who will feel the full impact of any rate rise.
The good news is that lenders committed this week to helping those borrowers and offering them a cheaper deal. It might not be the cheapest on the market, and they still won’t be able to remortgage to another lender, but they should pay less, which is a step in the right direction, particularly if the trend in base rate is upwards."
Russell Quirk, founder and CEO of Emoov.co.uk, commented: “It would seem that reports of the property markets death are greatly exaggerated with the latest figures showing an appropriately warm uplift in house price growth for this time of year.
However, we may see this positive price growth slow over the next month or so. The start of the school holidays is generally the time of year that the UK property market packs up and heads south for the summer, like the majority of us. This seasonal slowdown, with the addition of a potential interest rates increase tomorrow, could further dampen an already saturated level of buyer demand.
While even the predicted increase to 0.75% will see mortgage availability remain very affordable for many, it will have implications for those borrowed up to the teeth, or considering it, in order to get a foot on the ladder.
That said, in many areas, asking prices are continuing to realign themselves with wider market conditions and so a marginal increase in the cost of borrowing shouldn’t deter those in the appropriate position to buy.”
Jonathan Samuels, CEO of the property lender, Octane Capital, said: "While the real financial impact of a quarter percent rate rise will be modest, it's the impact on sentiment that matters most.
Gradual and limited increases are the party line, but the Bank of England's track record on forward guidance is hardly robust. If this week's rate increase happens, it could be perceived as heralding more hikes, which could create an environment of even greater caution.
The direction of inflation and wage growth will be key to how the property market accommodates rates rises, however small, during the course of the next year. While the jobs market overall is strong, many households are feeling the pinch. With Brexit negotiations in a state of disarray, confidence is being further eroded.
The market may have nudged up in July but it's hard to see the broader trajectory of house prices as being anything other than flat."
Mike Scott, chief property analyst at Yopa, commented: "Nationwide reports a slight strengthening of the market, with the annual rate of growth in house prices increasing to 2.5 per cent. However, the lender does not expect this upturn to continue, and is sticking with its forecast of 1 per cent growth in house prices for the full year.
Like other commentators, Nationwide expects the Bank of England to increase its base lending rate to 0.75 per cent later this month. The immediate impact on the market should be minimal, since most new mortgages are fixed rate and current mortgage rates are already pricing in an increase in the base rate.
However, it may affect market sentiment, especially if it is followed by another rate rise within a few months. If the cost of borrowing continues to creep up, the longer-term effect on the housing market may be more severe, as mortgage rates rise from the historically low levels that we have enjoyed for the past decade. However, the shortage of supply will continue to prop the market up, and any reversals are likely to be short-lived."
Mark Readings, Founder and Managing Director of Online Estate Agency, House Network, said: "At House Network we have had a surprisingly strong July, traditionally with the start of the school holidays and the good weather we see the market cool, with the World Cup thrown into the mix we were anticipating a slow month. However, maybe the feel-good factor of both the success of the England football team and the heatwave has had a positive impact on the housing market. We are seeing record levels of market appraisals being undertaken which would suggest homeowners are positive about the market, helped by high employment and low-interest rates.
Despite area’s outside London showing strong activity and demand, the capital remains dismal as generation rent continues to grow, undeterred by rental rises. Due to political uncertainty, those looking to buy into the capital have a wait and see approach, this is unlikely to change until uncertainty fades and confidence is regained."
Lucy Pendleton, founder director of independent estate agents James Pendleton, may be of use: “The housing market has bobbled up and is beating inflation but only by a hair’s breadth.
However, this is only going to be the second most watched number of the week, with a likely rate rise only hours away. Finally something might happen which will, at least temporarily, move the conversation away from Brexit, which for ordinary homeowners who are fascinated by their house price has only ever been a fuzzy political puzzle whose association with predictions of economic Armageddon have been difficult to reconcile.
Rate rises at this level are more psychological than any other, but even if the guidance says rates will remain low, the experts have been wrong before and buyers are prone to being overly cautious. Buyers think five years ahead and, when buying a house, focus on how secure their job is and what their income multiple is. They are very much aware that the end of their fixed term deals will arrive quicker than they’d like.
The truth is that the fundamentals of Britain’s housing market have been little affected by Brexit. London has continued to suck in overseas cash, and the market in the capital has risen the quickest and will fall the fastest, which is what it is doing. The only people shocked by this are the same people who throw a ball in the air and act surprised when it hits them on the nose.
A rise in rates this week is what will really focus minds, so that’s still the one to watch.”
Sam Mitchell, CEO, online estate agents Housesimple.com, comments: "The fact that it is difficult to say very much about these figures, sums up market conditions at the moment.
Nothing much is happening of note, and it's hard to know what to say other than it's not necessarily a bad thing that the market is subdued and price growth is flat. For the past decade we have ridden a rollercoaster of rising and falling prices, but right now it seems to tick up a little one month and tick down a little the next.
On the ground there has been a noticeable increase in properties being listed, and there are still enough sales progressing that the market hasn't ground to a halt, but they are progressing at a steady rate. We should bear in mind that we are in the traditionally quiet summer period for the property market, and the weather has been so un-British like that most people have been outside making the most of it, rather than viewing properties.
Buyer and seller activity is likely to pick-up significantly in a month or so. September is generally a very busy period for the housing market, and sets the tone for the rest of the year. We should also get a better idea how buyers are sellers are feeling, and whether the likely small rise in interest rates has had any immediate impact."
Kobi Lehrer, co-founder of property investment platform British Pearl, had this to say: “These figures represent the best growth we have seen since January and call for a collective sigh of relief for those who feared the market was entering a terminal decline.
Last month’s collapse in the growth figure was the lowest for five years but monthly changes can produce these lurches, before growth recovers quickly the following month as if to balance it out. As ever, we’re seeing a continuingly-growing population, building that can’t keep up with demand and the drip, drip of homes hitting the market continuing to hold up prices even though transaction levels have been low for a while.
The fact transaction levels have remained stubbornly low is what says the most about this market. Let’s not forget that one in five properties is still privately rented. Despite the well publicised retreat in buy-to-let tax reliefs in recent years, there has so far been no great landlord exodus in historic terms.
Conditions will continue to tighten on them over the next few years but the lack of a flood of supply created by exiting investors still speaks volumes about where they think this market is at the moment.
While annual rises of over 5% seem to be behind us for now, investors are still finding that kind of growth if they pick wisely, and that goes for yields too. The HPIs have a tendency to mask pockets of opportunity, just as the FTSE disguises the outperformance of individual companies. It will be some comfort to investors and homeowners that a rate rise this week probably still won’t have the pulling power to force a significantly greater correction in prices lower.”
