UK house price rise continues to level off

According to the latest survey on house prices, growth in the sector has slowed to its lowest level in almost a decade.

The report from the Nationwide Building Society has revealed that house prices have risen by just 5.5% in the year ending May, the lowest year-on-year increase since August 1996. In comparison the year-on-year growth in UK house prices was 19.5% in the twelve months to May 2004.

Commenting on the figures, Nationwide's Group Economist Fionnuala Earley said: “House prices in May increased by 0.3%. This continues the trend witnessed since the start of the year and is consistent with Nationwide’s view that the market is cooling gradually. The annual rate of house price inflation fell back to 5.5% in May from 7% in the previous month. This is the lowest annual rate of house price inflation since August 1996. Prices increased by an average of 0.2% per month in the last three months – a very different picture to this time last year when the average increase was 1.7%."

Nationwide said that the price of a typical property increased by £8,252 in the 12 months to May to stand at £157,272.

Ms Earley added: “The biggest change in sentiment during the month centres on interest rates. From the earlier expectation that the MPC would increase rates in response to underlying inflationary pressures, the consensus is now that rates have peaked.

"Another month of dismal retail sales data led to worries that the consumer, who has for so long supported the economy, is now retrenching and that this could lead to a sharper drop in economic activity than previously expected. The Bank of England adjusted its forecast for economic growth down, but the underlying economic background remains generally favourable and all of the major housing market drivers remain firm.

“The decision to leave interest rates on hold is clearly good news for the housing market where deteriorating affordability has held first time buyers back and there are worries about higher sensitivity to interest rates due to higher levels of household debt."

(SP)