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May house prices exceed boom record high

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  • 03/06/2014
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May house prices exceed boom record high
Nationwide reported May house prices rose to the boom time high hit in October 2007, as pressure rises on the government and Bank of England to clamp down on Help to Buy.

UK house prices increased by 0.7% in May and were 11.1% higher than May 2013, the 13th consecutive increase in the UK.

The report comes after the European Commission (EC) urged George Osborne to act adding its voice to warnings that Britain’s housing market – particularly in London – is posing a threat to the UK’s economic stability yesterday.

The EC suggested higher Council Tax for more expensive properties and a clamp down on Help to Buy as control measures.

First-time buyers are driving the recovery and accounted for 48% of the all house price activity in March, far above the long run average of 38%.

But Nationwide’s chief economist Robert Gardner said Help to Buy is not the main factor driving price inflation in the wider market. Although data from DCLG suggests that the scheme is providing support to first time buyers, Help to Buy loans only account for 9% of all UK first-time buyer purchases in Q1.

Primarily targeting the London market, part-state-owned bank Lloyds moved to cap lending at 4 x income last week for loans of over £500,000 citing concerns about the London market.

Bank of England figures earlier this week confirmed activity in the housing market is moderating slightly and mortgage lending dipped in April.

Gardner said: “It is too early to say whether nationally this is indicative of a cooling trend in the wider market. The slowdown may partly be the result of the introduction of Mortgage Market Review (MMR) measures, which may take a few months to bed down. The underlying pace of activity should become more evident as we move through the summer months and the impact of MMR becomes clearer.”

He added: “However, with mortgage rates close to all-time lows and labour market conditions continuing to improve, underlying demand for homes is likely to remain strong.”

Jeremy Duncombe, director, Legal & General Mortgage Club, said: “Whilst continued house price rises are a sign that confidence has returned to the market, these sharp increases, particularly in London and the South East, are detrimental to the overall recovery. London is becoming unaffordable for more and more people, while other areas of the UK are lagging behind.

“This two-speed market is likely to divide the UK and threaten the stability of the recovery. It is therefore important that any decisions on how to cool the market take into account these regional differences, and aren’t based solely on what is happening in the capital.”

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