image source, Getty Images
- Author, Dearbail Jordan
- Role, Business reporter, BBC News
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UK house prices returned to growth in May after rising 0.4%, according to Nationwide, as rising wages and lower inflation boosted buyer confidence.
The average house price reached £264,249 this month, compared with £261,962 in April, the building society said.
UK mortgage rates have been relatively high as the Bank of England is not expected to cut interest rates as quickly or as sharply as initially predicted earlier this year.
The May profit reversed a 0.4% decline in the previous month.
Andrew Harvey, chief economist at Nationwide, said: “I think we’ve been a bit surprised by the resilience of the market because these affordability pressures have been quite significant.”
House prices rose 1.3% in the year to May, Nationwide said. This compares with 0.6% growth in the 12 months to April.
The building society said consumer confidence had “improved markedly over the past few months, supported by solid wage gains and lower inflation”.
The average two-year fixed-rate mortgage is currently 5.92%, according to Moneyfacts, a financial information company. This compares to 5.83% in April.
The average five-year fixed mortgage rate is 5.49%, up from an average of 5.4% last month.
Sarah Coles, director of personal finance at Hargreaves Lansdown, said high house prices were a barrier for many buyers because “combined with higher mortgage rates, monthly repayments are pushed out of reach”.
However, she said: “Buyers are pushing through, which owes an awful lot to people’s confidence in their own personal financial situation.
“The easing of inflation, along with massive wage growth and relatively low unemployment, means people are feeling more secure.”
The latest figures from the Office for National Statistics showed that average pay excluding bonuses rose by 6% between January and March.
Interest rates
The Bank of England will announce its next interest rate decision on June 20. Since last year, they have kept borrowing costs at 5.25%. The bank aims to keep inflation at 2%.
Mr Harvey said that while headline inflation was slowing – to 2.3% in the year to April – “it’s a complicated picture”.
One measure of inflation the Bank of England looks at when considering rate cuts is the services sector, which includes areas such as education and hospitality, and provides an overview of wage growth and unemployment.
This rate of inflation did not slow as much as the overall figure, falling only slightly to 5.9% in April.
Mr Harvey said: “Some underlying price inflation pressures, such as in the services sector, are still stubbornly high.
“That’s one of the reasons why the Bank of England may not be quite ready to cut interest rates yet, because those pressures are still there and they’re still very aware of the impact they could have.”
When compiling its figures, Nationwide looks at its own mortgages and excludes cash buyers and buy-to-let deals.
Cash buyers account for roughly a third of housing sales.
The building society said that with the July 4 general election looming, it had carried out an analysis of the movement of house prices around the previous general election and concluded that there had been no significant impact.
Ways to make your mortgage cheaper
- Make overpayments. If you still have some time to get a low fixed rate deal, you may be able to pay more to save later.
- Switch to an interest-only mortgage. This can keep your monthly payments affordable even if you don’t pay off the debt incurred when you bought your home.
- Extend the life of your mortgage. A typical mortgage term is 25 years, but 30 and even 40 year terms are now available.