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House prices in London rose for the first time in a year in May as the cost of property increased at the fastest pace across the UK since March 2023, according to official data that points to recovery in the housing market.
The average house price in the capital grew 0.2 per cent to £523,000 in the 12 months to May, up from a 3.6 per cent contraction in the 12 months to April, the Office for National Statistics said on Wednesday.
The reading marks the first annual rise since May 2023, reflecting an easing in the impact of higher borrowing costs on households in London, which remains by far the most expensive part of the country.
In the same period, the average UK house price jumped by 2.2 per cent to £285,000, the fastest pace since March 2023 and the third consecutive rise following eight consecutive months of contraction.
Karen Noye, mortgage expert at wealth management company Quilter, said the “much more positive” run of economic data was “feeding through to buyer sentiment and causing house prices to rise”.
With inflation holding steady at the Bank of England’s target of 2 per cent in June, “mortgage rates have settled somewhat too giving buyers more certainty over costs and which gives buyers more confidence to bid above asking prices, pushing prices up”, she added.
Home loan costs have risen since February owing to stubbornly high services inflation but they have stabilised in the latest weeks.
Separate official data published on Wednesday showed services inflation was unchanged at 5.7 per cent in June. Financial markets now expect the BoE to start cutting interest rates — which stand at a 16-year high of 5.25 per cent and affect lenders’ pricing — from September rather than August.
Elliott Jordan-Doak, 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 per cent, supported by interest “rates falling and real incomes rising”.
Affordable housing was a key issue in the general election. In the King’s Speech on Wednesday, Sir Keir Starmer’s government will set out legislation to boost renters’ rights and force councils to identify land for future housing need.
Unlike data from lenders such as Nationwide and Halifax, ONS house price figures include cash buyers, representing the most comprehensive indicator of the sector’s health.
Mortgage rates peaked in the summer last year, boosting a recovery in the market after buyer demand dropped because many households could not afford a deposit.
Despite the return to growth, house price growth in London of 0.2 per cent was the weakest across every UK nation and region in England, extending the underperformance of the capital seen since 2016.
House price growth was the fastest in Yorkshire and the Humber at 3.9 per cent in the 12 months to May.
The ONS data also showed the third consecutive fall in annual growth in UK rents, which rose by 8.6 per cent in the 12 months to June, down from a record pace of 9.2 per cent in March.
Rents have risen to record highs over the past year, reflecting increased demand as many households turned to tenancies because of higher mortgage costs and competed for a smaller number of properties. Landlords have also passed on higher mortgage costs to tenants.
Nathan Emerson, chief executive of Propertymark, a trade body for estate agents, said the rental sector “urgently needs investment to keep pace with demand”.
He urged the government to “review all elements and generate new legislation that promotes investment, but above all, provides full fairness to both landlords and tenants alike”.