UK house prices property 2017
House prices and rents are set to rise further in 2017, underpinned by a supply shortage Reuters

The upcoming increase in interest rates is likely to have a limited impact on British households, according to Nationwide.

On Thursday (2 November), the Bank of England is widely expected to lift interest rates from the first time in decade, raising the benchmark rate to 0.5% from the historic low of 0.25%, where it has been stuck since the Bank lowered interest rates in August 2016 in the wake of the Brexit vote.

However, Nationwide believes the impact will be contained as a greater number of households are now on fixed mortgages. The share of mortgages on variable rates - those subject to higher payments if interest rates are increased - has fallen to a record low of 40% from a peak of 70% in 2001.

Nationwide chief economist Robert Gardner said the expected 0.25% rate rise would increase monthly payments by £15 to £665 for the average mortgage, meaning households would pay an extra £180 a year.

The report came as the mortgage lender said Britain's housing market continued to recover in September, as house prices edged higher.

According to data released by Nationwide on Wednesday (1 November), the average price of a property in Britain rose 0.2% month-on-month in October to £211,085 ($272,570), while September's 0.2% gain was revised up to 0.4%.

On an annual basis, house price growth edged up to 2.5% from 2.3% in the previous month, remaining within the 2-4% range that has prevailing since March

"Low mortgage rates and healthy rates of employment growth are providing some support for demand, but this is being partly offset by pressure on household incomes, which appears to be weighing on confidence," said Gardner.

"The lack of homes on the market is providing support to house prices."

Nationwide added population growth was among the many factors to impact housing demand. England's population increased by 11% to 54.8 million between 2001 and 2015, with international migration accounting for 60% of the change over the period.

"This trend will have contributed to the increase in demand for housing, the size and nature of the impact depends on the size of the extra households that were formed," explained Gardner.

"For example, migrants who live together in a house share will have less of an impact on housing demand than those living separately."

However, he added Britain's impending exit from the EU could have a significant impact on the housing market.

"With the ongoing uncertainty around Brexit and the rights of EU citizens once the UK leaves the EU, we may see a slowing in housing demand and particularly rental demand in the years ahead, if it results in slower migrant flows," he said.