UK house price growth slows in May, says Nationwide

LONDON: House prices in Britain rose by 0.5% in May, half the rate of the previous two months but enough to lift property values within 10% of their 2007 peak, a survey showed yesterday.

Th e Nationwide building society said the increase meant prices had risen 12.2% since February 2009 and were just 9.5% below the high scaled in October 2007. Th e annual rate of increase however fell to 9.8% from 10.5%, refl ecting the weaker pace of increase in May this year compared to last.

House prices have risen in 12 of the past 13 months on the Nationwide index, although the pace of growth appears to be slowing. May’s increase followed an upwardly revised 1.1% jump in April and a 1% rise in March.
 
Analysts said that, coming after subdued mortgage lending data from the Bank of England on Wednesday, the fi gures reinforced expectations house prices would struggle this year as high unemployment and an expected fi scal squeeze take their toll.

“We believe that house prices are likely to be erratic over the coming months and at best will make very modest gains over the rest of the year. Indeed, we would not be surprised if they were only fl at overall through the rest of 2010,” said Howard Archer, economist at IHS Global Insight.

The rebound in property prices over the past year has been fuelled by record low interest rates and limited supply. While the former is likely to remain a supportive factor,  anecdotal evidence suggests more properties are starting to come on to the market.

Martin Gahbauer, Nationwide’s chief economist, said current supply and demand dynamics were consistent with “relatively stable to modestly upward trending prices”. He said the future outlook for the market could depend on the government’s plans to increase capital gains tax.

“If there is a signifi cant time lag between the announcement of the increase and its actual implementation, then second home owners and buy-to-let landlords may decide to
sell in advance,” Gahbauer said.

Britain’s coalition government had pledged to raise capital gains tax closer to income tax rates, although precise details will not be known until the annual budget on June 22.