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UK house prices increased by 0.3% in May and the annual price growth figures moderated to 4.6% from 5.2% in April, according to the latest index figures. The data from the Nationwide Building Society confirms a gradual downward trend that takes the average price in the country to £195,166. Robert Gardner, Nationwide's chief economist, pointed out that this general trend has been in evidence since the summer of 2014 but was briefly interrupted in April when price growth edged up to 5.2% from 5.1% in March. However, annual house price growth is now running at less than half the pace prevailing in the middle of 2014. ‘Over the longer term we would expect house price growth to converge with earnings growth, which has typically been around 4% per annum. However, much will depend on supply side developments and in recent years the rate of building activity has remained well below that required to keep up with population growth,’ Gardner explained. The index report shows that cash transactions remain relatively high in the UK residential market. ‘We estimate that the share of cash purchases in the housing market reached an all-time high of 38% in the first quarter of 2015,’ said Gardner. ‘Continued healthy demand from cash buyers has helped to support transaction levels in recent quarters, since mortgage lending has remained relatively subdued. For example, in the first quarter of 2015 overall housing transactions were down by around 5% compared with the first quarter of 2014, while mortgage completions were around 11% lower,’ he pointed out. ‘Although the 38% share was a record, it was only modestly above the average of 36% prevailing in 2014. The significant rise in the share of cash transactions occurred in the wake of the financial crisis, where a tightening in credit conditions and a deterioration in the labour market limited the number of people able to buy with a mortgage,’ he added. Gardner also said that the current low interest rate environment is likely to have supported the flow of cash into other asset classes in recent years, including UK residential property. The Nationwide data suggests that the share of cash purchases in London is not out of line with the rest of the UK, which can be regarded as a surprise, given the greater involvement of investors, both domestic and overseas, in the London property market. ‘A limiting factor may be that house prices in the capital are over twice as high as the rest of the UK at £408,780 versus £188,566 in the first quarter of 2015,’ added Gardner. Continue reading →

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