The lender estimates that the average house price is now £102,886, a rise of 17.9 per cent on the same time last year.
Alex Bannister, group economist at Nationwide, said: "There has been no slackening in the demand for property in May. UK property prices rose 2.1 per cent in the month and annual house price inflation increased to 17.9 per cent - the highest figure since 1989. Record employment levels and low interest rates continue to underpin consumer confidence and this is translating into stronger activity levels. Lending for house purchase and house sale completions both increased sharply. April house sale completions were up 27 per cent compared with a year ago and the recent increase in approvals for house purchase suggest this strength will persist over the next few months.
“The housing market is almost certainly going through a period when households are adjusting to low inflation and low mortgage rates. Certainly consumers appear willing to take on higher levels of mortgage debt even though their payments as a proportion of their pay will not erode as quickly as during the seventies and eighties. Long-term affordability relationships are changing which in turn may push house prices up stronger than cost of living inflation. Following this adjustment, house price growth should return to a more sustainable rate of between 4-5 per cent per annum. However, this period of adjustment may be protracted given the positive economic backdrop for borrowers and the considerable momentum in the market."
