Enlarge imageBy Matt Falloon
LONDON (Reuters) - House prices rose at their weakest monthly pace this year in May, a survey showed on Thursday, suggesting higher interest rates may be starting to cool the market even as the annual rate held in double digits.
There have been signs in mortgage approvals and lending figures that Britain’s housing market is starting to come off the boil as four interest rate rises eat into sentiment and first-time buyers struggle to get on the property ladder.
Most house price surveys have remained fairly robust so far but are now starting to indicate a cooling in the market.
The Halifax house price survey showed prices rose 0.3 percent on the month in May, down from 0.9 percent in April and below forecasts for a 0.5 percent gain.
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The nation’s biggest mortgage lender said buyer interest in properties fell for a fifth straight month in April, suggesting price growth could ease further.
"Interest rates seem set to rise by a further 25 basis points to 5.75 percent before long, which will heighten affordability pressures," said Howard Archer, an economist at Global Insight.
"In addition, the very real possibility that interest rates could reach 6 percent before the end of the year is likely to act as a significant deterrent to many potential house buyers."
However, the annual three month rate of price growth held in double digits at 10.6 percent, easing slightly from 10.9 percent in April but pointing to residual strength in the market.
The Bank of England is widely expected to hold rates steady at 5.5 percent when it announces its latest policy decision at 1100 GMT, but there have been calls for immediate remedial action to improve affordability in housing.
Halifax said the cost of an average home stood at 196,893 pounds and research from the newly-formed independent National Housing and Planning Advice Unit has shown one in three non-home owners think they will never be able to afford a home.
The NHPAU argue home buyers could face house prices 10 times their annual earnings by 2026 and its chairman, former BoE policymaker Stephen Nickell, believes affordability has reached a "critical point".
"Demand for housing is growing and unless action is taken, pressure on the market will only get worse," Nickell said.
