The UK housing market remained strong in May with prices rising faster than in April, although the figures from the Nationwide Building Society suggested there might be the first signs of cooling.
The data showed prices rose 0.9 per cent last month, compared with 0.4 per cent in April, indicating what Robert Gardner, the building society’s chief economist, called “a surprising amount of momentum”.
The annual rate of price growth dropped a little to 11.2 per cent in May, from 12.1 per cent in April, because price rises were weaker last month than a year earlier.
The modest slowdown was seen as evidence that the steam could be coming out of the UK housing market, following two years of frenzied activity fuelled by the stamp duty holiday and lifestyle changes during the pandemic.
Gardner said: “We continue to expect the housing market to slow as the year progresses. Household finances are likely to remain under pressure, with inflation set to reach double digits in the coming quarters if global energy prices remain high.”
With prices still rising quickly and the transaction costs of buying and selling homes so high, the Nationwide also found in a separate survey that households wanted to increase space in their own properties as much as trade up.
Martin Beck, chief economic adviser to the EY Item club, said the figures showed that the housing market remained “detached” from the UK economy’s other troubles, with inflation in property prices still “heated”.
He joined the consensus in expecting a slowdown later this year. “Some affordability measures are stretched to an unprecedented degree, with both house prices-to-income and mortgage-to-income ratios sitting at record levels,” Beck said, predicting a slowing of price rises but no crash.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said the expected levelling off in the market would “leave the year-over-year growth rate at around 5 per cent by the end of this year”.
With house prices now 8.5 times average earnings, Gary Wright, co-chief executive of payment technology firm Flatfair, said: “Vast swaths of the country will likely be renting for the rest of their lives.”
This will concern ministers and social scientists at a time when the UK is looking back over 70 years of the Queen’s reign. Recent double digit price rises have continued a decades-long trend of property values outstripping inflation and wage growth.
The price of an average home in May was about £270,000 according to Nationwide data. In 1952, the year the Queen came to the throne, the average price was £1,891 — around £62,000 in today’s money, and cost four times average earnings.
This means current average house prices are 4.3 times higher than 1952 levels in real terms.