UK house prices were 11.2% higher in May than a year earlier but the annual pace of growth is slowing, new data from Nationwide suggests.
In April, average property values in Britain rose by 12.1% year-on-year, according to the building society's latest housing index. Prices also increased by 0.9% month-on-month in May, taking the average house price to £269,914.
Robert Gardner, Nationwide’s chief economist, said demand was being supported by strong labour market conditions, as the country's unemployment rate falls towards a 50-year low, and with the number of job vacancies at a record high.
He also said the stock of homes on the market remained low, keeping upward pressure on house prices.
“We continue to expect the housing market to slow as the year progresses," he explained. “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.”
Mr Gardner said measures of consumer confidence had already fallen towards record lows – and the Bank of England was widely expected to raise interest rates further, which would exert a cooling impact on the market if this feeds through to mortgage rates.
Many people are looking to improve their homes as well as move, he added.
He said: “Our recent housing market survey revealed that, as well as more people looking to move, over half of those surveyed (54%) are considering enhancing their home.
“The most popular option for those looking to make improvements was to add or maximise space, with more than a third (37%) citing this as a motivating factor. Interestingly, 29% of those surveyed wanted to improve energy efficiency or reduce the carbon footprint of their home."
Nicky Stevenson, managing director at estate agents Fine & Country, said while an imbalance still existed between supply and demand, things were "slowly" beginning to shift.
"At last we are seeing a steady rise in new listings. Though momentum remains stronger than many had anticipated, there may be room for further moderation in the months ahead if pay packets continue to be eroded and the Bank of England increases interest rates.”
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