LONDON: House prices in the UK rose by 0.3% in May, taking the average cost of a home to more than £195,000, according to the latest Nationwide building society figures.
However, the UK’s second-largest mortgage lender said growth had slowed from the 1% rise recorded in April, and that the annual rate of increase had fallen to 4.6% – its lowest level since August 2013 and less than half the rate it was running at in the summer of 2014.
Nationwide’s chief economist, Robert Gardner, said this meant that annual house price inflation was almost in line with expectations.
Over the longer term we would expect house price growth to converge with earnings growth, which has typically been around 4% per annum,” he said.
However, much will depend on supply side developments – in recent years the rate of building activity has remained well below that required to keep up with population growth.”
The society said its analysis suggested the proportion of purchases made in cash – usually involving bonuses, wealthy investors, or people downsizing or moving out of London and paying off a mortgage – had reached a record high in the first quarter of the year, representing 38% of the market.
This represents an increase on 2014’s figure of 36%, and is the continuation of a trend following the financial crisis, when the credit crunch and rising unemployment made it harder for people to get mortgages.
The low interest rate environment is likely to have supported the flow of cash into other asset classes in recent years, including UK residential property,” Gardner said.
Housing transactions were down by 5% year-on-year in the first quarter of 2015, while mortgage completions had fallen by 11%.
While UK and overseas investors have been more active in the London market than elsewhere in the country, Nationwide said the proportion of cash buyers was in line with the overall figure.
“A limiting factor may be that house prices in the capital are over twice as high as the rest of the UK – £408,780 versus £188,566 in Q1 2015 on our measure,” Gardner said.
Nationwide’s modest growth figure for May, which is based on homes valued by the society over the month adjusted to reflect a “typical” property, does not suggest a big bounce in prices agreed immediately after the general election.
