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UK house prices 'up 2.6% in May'

UK house prices rose by 2.6% in May compared with April but activity remains low in the market, according to the latest survey from the Halifax.

The lender, now part of the Lloyds Banking Group, warned against placing too much weight on one month's figures.

The rise came after three successive months of property price falls, it said. The annual rate of decline has now eased to 16.3% from 17.7% in April.

The average UK home now costs £158,565, the figures showed.

Market figures

Prices in the last three months compared with the previous three months are generally regarded as a less volatile measure of the housing market.

Between June 2008 and January 2009, this three-month figure showed consistent declines of between 5% and 6%. However, prices fell by 3.1% in the quarter to May compared with the previous three months.

The annual drop comparing the average price in May 2008 compared with the average price a year later is 13.7%, although the Halifax prefers to compare quarter-on-quarter prices for its annual figure - which calculates at 16.3%.

"There are some tentative indications of a possible stabilisation in activity, albeit at a low level," said Nitesh Patel, the group's housing economist.

"It is always important not to place too much weight on any one month's figures. Historically, house prices have not moved in the same direction month after month even during a pronounced downturn."

He pointed to the fall in house prices of 11% during 1991 and 1992, during which time there were still five monthly price rises.

Low activity

However, the monthly jump is the highest since October 2002 and echoes the increase in property prices reported in May by the Nationwide.

The building society reported a 1.2% rise in prices in May compared with April - the second rise in three months.

Both lenders suggested that a low supply of homes for sale was likely to have had an effect on average prices.

"House sales remain substantially below their long-term average and market conditions are expected to remain difficult with housing activity continuing at low levels over the coming months," said Mr Patel.

The Bank of England reported earlier in the week that the number of new mortgages approved for home buyers in the UK had risen in April for the third month in a row.

These are a good indicator of short-term trends and suggest sales may continue to rise. Completed sales have also jumped, but remain much lower than a year ago.

First-time buyers

Low interest rates have eased mortgage affordability for many. The Halifax index showed that the proportion of disposable income spent on mortgage repayments by a new borrowers dropped from a peak of 48% in the third quarter of 2007 to 31% in the first three months of this year.

With house prices dropping year-on-year, of those people buying a home with a mortgage in March some 40% were first-time buyers. The actual number - 12,500 - was a third lower than a year ago, but this was the highest proportion of first-timers in the market since April 2005.

Yet figures released to the BBC earlier this week from financial information service Moneyfacts found that mortgages were still being rationed, making the initial outlay for first-time buyers relatively expensive.

Of the 1,623 mortgage deals currently on offer, two-thirds still require a deposit of at least 25%, with a quarter of all deals needing a down-payment from the borrower of at least 40%.

Mortgage brokers and estate agents have highlighted low activity in the housing market, but said there were some signs of optimism for them.

"At the moment predicting monthly house price figures is a little like predicting the weather and it would be foolhardy to talk about a recovery based on one set of data," said Ashley Brown, director of mortgage broker Moneysprite.

"While activity in the property market remains low, there has been an increase in the number of mortgage approvals, which indicates growing confidence among buyers."

Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyors (Rics), said: "Crucially, a lack of new instruction to estate agents is resulting in a shortage of good quality stock in the right locations. This could continue to provide support for prices in the near term."