According to Nationwide, UK house prices experienced a growth of 0.4% in May, signaling a return to positive momentum. This increase can be attributed to the boost in buyers’ confidence, driven by wage growth and lower inflation.
The average house price for May was recorded at £264,249, surpassing April’s figure of £261,962, as reported by the building society.
One factor that has contributed to comparatively higher mortgage rates in the UK is the Bank of England’s decision not to cut interest rates as quickly or as drastically as initially predicted earlier this year.
This recent gain in May’s house prices reverses the 0.4% decline observed in the previous month.
Andrew Harvey, senior economist at Nationwide, expressed surprise at the market’s resilience in the face of significant affordability pressures.
Nationwide also revealed that house prices rose by 1.3% over the year leading up to May, in comparison to a 0.6% growth in the 12 months leading up to April.
The building society reported that consumer confidence has significantly improved in recent months, thanks to strong wage increases and lower inflation rates.
The Bank of England is scheduled to announce its next interest rate decision on 20 June. The current borrowing costs have been maintained at 5.25% since last year, in line with the Bank’s goal of keeping inflation at 2%.
According to Mr. Harvey, although headline inflation has been decreasing, reaching 2.3% in the year to April, the overall inflation situation is complex.
One of the factors the Bank of England considers when contemplating rate cuts is the inflation in the services sector, which encompasses areas like education and hospitality and provides insights into wage growth and unemployment rates.
This particular measure of inflation has not slowed down as much as the headline figure, only showing a marginal decrease to 5.9% in April. Mr. Harvey noted that some underlying pressures of price inflation, particularly in the services sector, remain stubbornly high.
This is one of the reasons why the Bank of England may not be ready to lower interest rates at the moment. The pressures mentioned earlier still exist, and the potential impact of these pressures is well recognized by the Bank.
When compiling its data, Nationwide focuses solely on its own mortgage lending and does not take into account cash buyers or buy-to-let transactions.
It is worth noting that cash buyers make up approximately one-third of total housing sales.