Nationwide: House prices stagger forward in May
For the second month in a row house prices crept upwards by a tiny amount, new figures from Nationwide show.
In May the average UK house price rose just 0.2 per cent, following on from April's 0.1 per cent rise.
These successive sluggish months mean house prices are now just 4.7 per cent higher than they were at the same time last year. The average UK house is now worth £164,632.
And this go-slow in house prices is happening at a time when many market indicators seem to point to a far stronger market.
"Activity this strong was last seen when house price inflation was in double digits two years ago," said Fionnuala Earley, Nationwide's group economist.
"In addition estate agents' sales to stock ratios are high suggesting the potential for further house price growth, while house builders continue to report more interest than last year.
"The revival in the London market, after several years of below average growth, has also added to sentiment that the market is picking up."
But despite this positive news house prices are not soaring as they were in 2004, and things could be set to get worse.
"Apart from well-known concerns about stretched affordability among first-time buyers, and the rising transactions costs that movers face, there are now further reasons to expect some cooling in the rate of house price inflation over coming months," Ms Earley said.
"The numbers of house purchase approvals remain well above their long term average, but they have begun to moderate since the start of the year.
"We expect them to cool further during the summer to around their long term trend."
She added that new buyer enquiries have slowed and more houses are coming onto the market, but that does not threaten the market as much as other factors.
Recently, the signs have been pointing to an increase in the Bank of England base rate, which will push mortgage costs higher.
"Financial markets are expecting two increases in the base rate by next summer," Ms Earley said.
"This has pushed up wholesale money market rates, which in turn has affected fixed mortgage rates."
While no change is expected for the next few months, this does not mean house prices will be unaffected - as fixed rate mortgages rise to take account of future movements and confidence is hit.
"Interest rate expectations in the financial markets on fixed mortgage interest rates, and press reports pointing towards the possibility of higher rates, should contribute to a cooling of house price growth," Ms Earley concluded.
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