The summertime slowdown has begun, with annual house prices now running at less than half the pace prevailing in mid-2014, Nationwide’s latest house price index has revealed.
UK house prices rose by 0.3 per cent in May, but annual house price growth moderated to 4.6 per cent in the 12 months to May from 5.2 per cent in April.
The lender’s chief economist Robert Gardner said this resumes the gradual downward trend that had been in evidence since the summer last year, which was briefly interrupted in April when price growth edged up from 5.1 per cent in March.
He said: “Over the longer term we would expect house price growth to converge with earnings growth, which has typically been around 4 per cent per annum.
“However, much will depend on supply side developments - in recent years the rate of building activity has remained well below that required to keep up with population growth.”
Nationwide estimated that the share of cash purchases in the housing market reached an all-time high of 38 per cent in the first quarter this year.
Continued healthy demand from cash buyers has helped to support transaction levels in recent quarters, since mortgage lending has remained relatively subdued. For example, in Q1 2015 overall housing transactions were down by around 5 per cent compared with Q1 2014, while mortgage completions were around 11 per cent lower.
“Though the 38 per cent share was a record, it was only modestly above the average of 36 per cent prevailing in 2014,” pointed out Mr Gardner.
“The significant rise in the share of cash transactions occurred in the wake of the financial crisis, where a tightening in credit conditions and a deterioration in the labour market limited the number of people able to buy with a mortgage.”
He added that the low interest rate environment is likely to have supported the flow of cash into other asset classes in recent years, including UK residential property.
Charlie Wells, managing director of buying agency Prime Purchase, said that the housing market is livelier than before the general election because it has certainty, noting that at the upper end at least, there is relief that there will be no mansion tax or changes to non-dom status.
“But the problem is stock levels: there is not a lot of property on the market; vendors who have been sitting on their hands because of election uncertainty are not yet making the decision to sell up.
He argued that vendors may be waiting until the summer is out of the way and planning on selling in the autumn when everyone is back from their holidays, so it may be too early to tell whether this situation will change.
“But with interest rates so low, where else would you put your cash to earn the same returns?”
peter.walker@ft.com
