Statistics from the Office for National Statistics (ONS) revealed this was down from the revised estimate of 2.7% house price growth in the 12 months to June.
Karen Noye, mortgage expert at Quilter, said the rise in house prices was “modest”, and the slower pace of annual growth compared to June suggested the market was “still grappling with the high interest rate environment” alongside the usual summer slowdown in activity.
She said the base rate decision could make a difference, as while rates were expected to stay the same, “any change could help more people take the leap and get back to house hunting”.
Scotland and Northern Ireland see highest house price growth
Of all the English regions, house prices in the North East saw the highest annual inflation of 3.8% to £164,555. Monthly, however, the rate of growth was muted at 0.1%.
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This was followed by Yorkshire and the Humber, where values increased by 3.7% to £214,918. This represented a 0.5% fall since June.
The North West reported an annual house price growth of 2.8% to £219,887, the East Midlands saw a rise of 2.5% to £248,817 and values in the West Midlands region increased by 2.2% to £253,707.
London was the only region in England to see a fall in house prices in July, with a nominal yearly drop of 0.4% to £520,747.
Across the whole of England, average house prices were up by 1.6% annually and 0.2% monthly to £305,879.
In the UK, Northern Ireland saw the strongest annual growth in house prices, with a 6.4% jump to £185,025. This was also 3.6% higher than the month before.
This was followed by Scotland with a 6% yearly increase to £199,398, which was 3.1% higher than June.
In Wales, house prices rose by 2% yearly and 1.1% monthly to average £218,184.
‘Momentum building’ in the resilient market
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said the market was “baring its teeth” and “demonstrating considerable resilience” at a time when economic uncertainty – such as the election – should have compromised prices.
He added: “Since then, falling mortgage rates, steadier inflation and more political certainty have helped to release pent-up demand and supply.
“Looking forward, we do not anticipate prices will pick up sharply as the improved choice and concerns, particularly among higher-end buyers and sellers, mean caution is prevailing.”
Richard Harrison, head of mortgages at Atom Bank, said: “There is clear momentum building in the housing market currently. The first base rate cut in four years has helped spark activity and a bit of competition among lenders, bringing back prospective buyers who might have put deals on hold.
“Lower mortgage rates are undoubtedly playing a part here, and while another base rate cut this week looks unlikely, the markets seem to expect another cut before the end of the year, spelling more good news for potential buyers.”
Harrison continued: “With the Budget due next month, I hope the new government is thinking carefully about how it can positively shape the prospects for homebuyers and homeowners in the years ahead, particularly first-time buyers. The housing ladder can only function if people are able to get onto that first rung.”
Waiting for government announcements
Gareth Lewis, managing director of specialist lender MT Finance, suggested property prices were still rising “because there aren’t enough sales transactions”.
He added: “Those buyers that are going ahead are paying a higher premium because there is still less stock available.
“However, agents report seeing an increase in activity. Whether that will mean more stock coming on and therefore more of a buyers’ market and flatter from a pricing point of view, only time will tell.”
Lewis also suggested the upcoming Budget may influence behaviour, adding: “People are waiting and seeing what the Budget has in store, mindful of some of the pledges Labour has made. However, the government should be mindful that it still needs the property market to be functioning and ultimately that comes from more stock and more transactions.
“Some stimulation is essential to encourage more people to move.”
Amy Reynolds, head of sales at Antony Roberts, agreed that pricing was delicate, saying: “Most properties are getting a good number of viewings, but pricing is very important.”
She added: “Well-priced properties sell, everything else sits on the market, goes stale and ultimately will achieve less than it could have realised if the price had been more realistic in the first place.
“We achieved over asking price on two houses this week alone, and have another house that after just a 2% price reduction, received an offer at the new asking price. The owners were sensible and understood a small price correction was needed to get the applicants to offer.
“This isn’t a market where buyers are coming in with big offers, there are some exceptions to this, but most people want to see properties that are reasonably priced and not waste their time.”
Larger properties increasing in value
The ONS data showed larger property types were seeing larger rises in average prices.
Annually, the average price semi-detached homes in the UK rose by 2.6% to £281,907.
Detached homes and terraced properties increased by 2.3% apiece, rising to £443,180 and £239,524 respectively.
Flats and maisonettes reported a 1.4% rise in average prices to £235,537 year-on-year.
The average price of a new-build home surged by 23.2% annually or 8.7% monthly to £422,288.
The rise in existing resold properties was much more muted, with a 1.3% yearly increase and 1.1% monthly uptick to £280,469.
First-time buyers paid 2.4% more for their homes than they did last year, at an average price of £242,789. This was also 0.5% higher than the month before.
Former homeowners paid £335,756 for their homes, 1.9% higher than last year and 0.7% more than in June.