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London house prices rose for the first time in a year in May as property costs rose at the fastest pace across the UK since March 2023, according to official data, pointing to a recovery in the housing market.
The average house price in the capital rose by 0.2 per cent to £523,000 in the 12 months to May, up 3.6 per cent on the 12 months to April, the Office for National Statistics said on Wednesday.
The figures represent the first annual rise since May 2023, reflecting the easing of the impact of higher household borrowing costs in London, which remains by far the most expensive part of the country.
In the same period, the average UK house price jumped 2.2 per cent to £285,000, the fastest pace since March 2023 and the third consecutive increase after eight consecutive months of decline.
Karen Noye, a mortgage expert at wealth management firm Quilter, said the “much more positive” run of economic data “is feeding into buyer sentiment and driving home prices higher.”
With inflation unchanged at the Bank of England’s 2 percent target in June, “mortgage rates have stabilized somewhat, giving buyers more certainty about costs and giving buyers more confidence to offer higher prices, pushing prices up “, she added.
Home loan costs have risen since February due to stubbornly high services inflation, but have stabilized in recent weeks.
Separate official data released on Wednesday showed inflation in services unchanged at 5.7 percent in June. Financial markets now expect the BoE to start cutting interest rates – which are at a 16-year high of 5.25 per cent and affect lender prices – from September rather than August.
Elliott Jordan-Doak, an economist at consultancy Pantheon Macroeconomics, said the strength of the latest data meant house price growth could end the year above his forecast of 3 percent, supported by “falling interest rates and rising real incomes.”
Affordable housing was a key topic of the parliamentary elections. In the King’s Speech on Wednesday, Sir Keir Starmer’s government will set out legislation to strengthen tenants’ rights and force councils to designate land for future housing needs.
Unlike data from lenders such as Nationwide and Halifax, the ONS house price figures include cash buyers, providing the most comprehensive indicator of the health of the sector.
Mortgage rates peaked last summer, fueling a market recovery after buyer demand fell as many households couldn’t afford a deposit.
Despite the return to growth, London’s house price growth of 0.2 per cent was the weakest of all UK countries and regions in England, extending the capital’s underperformance since 2016.
House price growth was fastest in Yorkshire and the Humber at 3.9 per cent in the 12 months to May.
The ONS data also showed a third consecutive fall in annual UK rent growth, which rose by 8.6 per cent in the 12 months to June, from a record pace of 9.2 per cent in March.
Rents have risen to record levels over the past year, reflecting increased demand as many households move to renting due to higher mortgage costs and competing for fewer properties. Landlords have also passed on higher mortgage costs to tenants.
Nathan Emerson, chief executive of Propertymark, the trade body for estate agents, said the rental sector “urgently needs investment to keep up with demand”.
He called on the government to “review all elements and create new legislation that supports investment but above all provides full fairness to both landlords and tenants”.