This increase has taken the average house price across the UK to a new all-time high. The year-on-year rate of change however, slipped back to just 5.5 per cent. This is the lowest annual increase since August 1996.
Prices increased by an average of 0.2 per cent per month in the last three months - a very different picture to this time last year when the average increase was 1.7 per cent. The price of a typical property increased by £8,252 in the 12 months to May and now stands at £157,272.
Commenting on the figures Fionnuala Earley, Nationwide's group economist, said: "House prices in May increased by 0.3 per cent. 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 per cent in May from 7 per cent in the previous month. This is the lowest annual rate of house price inflation since August 1996."
"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," Earley added.
She added: "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. Employment, income, interest rates and confidence are still supportive, but this does not suggest that the market will pick up again rapidly, rather that it will continue on its gently cooling path this year.
"The impact on house prices comes primarily from lower levels of activity. Estate agents have reported falling sales to stock ratios since February last year. This reflects stickiness of selling prices and, more recently, the reluctance of buyers to meet these. The relatively buoyant economic conditions mean that sellers are still under little pressure to reduce their prices. Buyers, on the other hand, affected by deteriorated affordability and changing sentiment, are not willing to stretch themselves further to meet them. We anticipate that this will unwind, but gradually, as sellers adjust their own expectations, rather than as a result of forced or panic sales. Mortgage approvals, which provide a good leading indicator of transaction levels, are significantly lower than this time last year but have shown some recovery since the start of 2005 and this may signal the start of some unwinding. Seasonally adjusted house purchase approvals in April increased to 95,000 and we expect that they will continue around this level for some months."
