Annual UK house price inflation slowed to reach 2.7% in May, says ONS

The average UK house price increased by 2.7% in the 12 months to May, slowing from a 3.9% annual increase in April, the Office for National Statistics (ONS) has said.

Across the UK, the typical house price in May was £271,000.

Sarah Coles, head of personal finance at AJ Bell, said: “House prices held steady between April and May, but this masks a deep and dramatic North/South divide. Over the past 12 months, property prices in the North East have been roaring away – up 5.9 per cent. The North West meanwhile is up 5.8 per cent and Yorkshire and the Humber up 4.3 per cent.

“In the South West, they rose just 1.7 per cent, in the South East they were up 1.2 per cent, and in London, they fell a sickening 3.7 per cent. It’s the ninth consecutive month that London has posted an annual price drop. The bulk of the damage was done in inner London, where prices are down 5.9 per cent in a year.

“Affordability plays an enormous part in this. London still has the highest house prices in the country, at an average of £545,000, which is why it also has the largest proportion of renters. Vast swathes of Londoners have been priced out altogether, while others aren’t keen to stretch their finances at a time when there’s so much uncertainty in the wider world. Meanwhile, the North East has the lowest average price, at £164,000, and while average salaries are also lower, the gulf remains striking.

“As prices fall in London, it affects sentiment, so some would-be buyers in the capital are holding off for fear that after they buy, their new home could keep losing value. It becomes a self-fulfilling prophecy because having fewer buyers around tends to depress property prices even further.

“We can expect more weakness to settle into the figures across the country in the coming months. This data measures house prices at completion, so tend to cover sales agreed three or four months earlier. It means the summer figures could be a tough read, reflecting loss of confidence and stretched affordability after the start of the Iran war.

“There was an outbreak of optimism with the Iran peace deal, which cut the oil price, reduced inflation fears, and meant mortgage rates got decidedly cheaper. However, the fragility of that deal has dimmed this optimism, and recent mortgage rate rises could send many buyers back into a wait-and-see pattern.

“It can be frustrating to put your buying plans on hold, but it doesn’t mean you can’t make progress. It’s an opportunity to keep building your deposit. If you have a Lifetime ISA, you can also make the most of this year’s allowance and the government bonus. It’s also a chance to revisit your emergency savings.

“These always take a hit in the early months of home ownership, as properties tend to hold nasty and expensive surprises, so you could be very grateful for anything you can do to beef up your savings now.”