House prices surge 10.9% in year to May but could 'fall back down to earth' over summer

House prices soared by 10.9 per cent annually in May, marking the strongest growth in nearly seven years.

The double-digit house price growth recorded in May followed a 7.1 per cent annual increase in April, according to Nationwide’s house price index.

Across the UK, property values hit a new record average of £242,832 – up by £23,930 compared with 12 months earlier.

The figures prompted debate among experts about whether the house price boom could be followed by a bust.

Lucy Pendleton, property expert at independent estate agents James Pendleton, said: ‘Such fierce appreciation is certainly attention grabbing, but when property hits double-digit growth like this, it’s normally a brief squint at the sun before falling back down to Earth. 

‘That will probably happen in July due to the effects of a two-month interruption of house price growth last year.’

House prices were up by 1.8 per cent month-on-month in May, according to Nationwide, following a 2.3 per cent increase in April.

Activity in the housing market collapsed in the wake of the first national lockdown in spring 2020, but has bounced back strongly over the past year. 

This has been driven by the Government’s introduction of a stamp duty holiday and lifestyle changes prompted by the pandemic. 

Robert Gardner, Nationwide’s chief economist, said: ‘A year ago, activity collapsed in the wake of the first lockdown, with housing transactions falling to a record low of 42,000 in April 2020.

‘But activity surged towards the end of last year and into 2021, reaching a record high of 183,000 in March. 

‘It is shifting housing preferences which is continuing to drive activity, with people reassessing their needs in the wake of the pandemic.’

At the end of April, 25 per cent of home owners surveyed said they were either in the process of moving or considering a move as a result of the pandemic, according to Nationwide – only modestly below the 28 per cent recorded in September last year.

Typically only around 5 per cent of housing stock typically changes hands in a given year.

Of those moving or considering a move, a third (33 per cent) were looking to move to a different area while nearly 30 per cent were doing so to access a garden or outdoor space more easily. 

Miles Robinson, head of mortgages at online mortgage broker Trussle, issued a warning to buyers hoping to take advantage of the stamp duty holiday, which continues in its current form until the end of June before the level of relief is reduced. 

‘There’s a possibility that the upcoming stamp duty holiday deadline is creating a false economy of bidding wars, with house prices inflating beyond their original value,’ he said. 

‘This is putting buyers at risk of lenders down valuing during the mortgage process and even if applications are successful, homeowners could find themselves in negative equity later down the line. 

‘Spending some extra time saving towards your deposit could give you a better chance of finding and securing the right home for you in the future.’

Iain McKenzie, CEO of The Guild of Property Professionals, also warned buyers against a ‘fearof missing out’. 

‘With a record-breaking new average house price, which has grown almost £24,000 over the past 12 months, it’s worth thinking about how your potential savings might not outweigh the inflated price of your new home,’ he said. 

‘It is still crucial that prospective buyers go into the process with a sound understanding of the market and what they want from a new property.

‘As demand in the market increases, the extra competition creates a fear of missing out that can distract buyers from the fundamentals. It’s important not to let the current property frenzy draw attention away from what you are really looking for.’