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UK house prices rise to a record level, Nationwide’s May data show



Residential houses line streets in the Brixton district of London, UK


UK house price increases accelerated in May to a record level, according to data from Nationwide, adding fuel to the debate over whether a bubble is developing in the market.

The data showing 11.1 per cent growth to £186,512 comes a day after the European Commission added its voice to warnings that Britain’s housing market – particularly in London – is posing a threat to the UK’s economic stability, and urged George Osborne, the chancellor, to act. The previous peak for house prices on the index was £186,044, reached in October 2007.


The EU executive wants Mr Osborne to calm the capital’s housing market by reining in his Help to Buy scheme and increasing council tax on more expensive properties.

Nationwide’s price rise last month, measured on an annual basis, compared with a 10.9 per cent rise in April. On a monthly basis, prices rose 0.7 per cent in May. The rapid rises run counter to other indicators that have suggested the market is cooling slightly. On Monday, the Bank of England said the number of mortgage approvals had fallen for the third successive month, and stood 17 per cent lower than in January.

Some economists suggested this could be due to banks changing lending criteria and practices ahead of the introduction of the Mortgage Market Review at the end of April which tightened affordability standards.

The data from Nationwide are the first to cover May and the first full month of MMR regulation.

Robert Gardner, chief economist at Nationwide, said that while there have been “tentative signs” that activity in the housing market is moderating, “it is too early to say whether nationally this is indicative of a cooling trend in the wider market”.

Price indices have presented wildly contrasting pictures of the health of the housing market – according to some the boom is back, while to others the slump staggers on

He added that the MMR measures may take a few months to bed down, and said: “The underlying pace of activity should become more evident as we move through the summer months and the impact of MMR becomes clearer.”

The European Commission’s report echoes the concerns of Mark Carney, the Bank of England governor, of the potential risks posed by the housing market. It recommends adjusting the second stage of the Help to Buy mortgage guarantee scheme, which is not restricted to new builds, and mitigating risks related to high mortgage indebtedness.

On the shortage of new houses, Brussels said the government has failed to adequately address the “structural phenomenon” of the lack of new houses that is “likely to extend into the medium term”.

“Action is needed to further boost the supply of houses – by creating appropriate incentives to raise supply at the local level,” the report said.

Mr Osborne said the BoE has the tools to rein in the housing market and has agreed that vigilance is needed.

Nationwide data shows that in the first quarter the ratio of house prices for first-time buyers had reached 4.7 times that of their earnings, the highest level since the third quarter of 2008.

But Mr Gardner of Nationwide dismissed suggestions that Help to Buy was responsible for driving up prices, saying the combination of low mortgage rates and growing confidence “on the back of improving labour market conditions and the brighter economic outlook are probably playing a much greater role in stimulating buyer demand”.


Nationwide’s figures run counter to a rival index by Halifax, which is due to release its May data later this week, showing house prices falling on a monthly basis in March and April, though the index rose 8.5 per higher compared with a year ago.

Senior figures at the Bank of England have warned that the housing market now poses the biggest domestic risk to financial stability. But a rate rise is unlikely to be on the agenda for its interest rate setting Monetary Policy Committee, which meets this Thursday. Action is more likely to come from the Financial Policy Committee, which is in charge of maintaining financial stability, that meets at the end of June.

Copyright The Financial Times Limited 2014. 

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