The annual pace of house price growth remained slow in May following the introduction of higher stamp duty in April, new figures show.
According to the latest Nationwide House Price Index, annual house price growth slowed to 4.7% in May, down from 4.9% in April.
Property prices rose 0.2% during the month to £204,368.
Robert Gardner, Nationwide’s chief economist, said the volatility generated by the stamp duty changes made it difficult to gauge the underlying strength of activity in the housing market.
“House purchase activity is likely to fall in the months ahead given the number of purchasers that brought forward transactions. The recovery thereafter may also be fairly gradual, especially in the buy-to-let sector, where other policy changes, such as the reduction in tax relief for landlords from 2017, are likely to exert an ongoing drag.
“Nevertheless, healthy labour market conditions and low borrowing costs are expected to underpin a steady increase in housing market activity once stamp duty related volatility has passed, providing the economic recovery remains on track.”
The buy-to-let market has surged in recent years, with investors attracted by cheap mortgages, low interest rates and rising rents.
In April a 3% stamp duty increase was introduced as part of the government’s attempt to curb the buy-to-let market and free up property for first-time buyers. The basic rate of tax relief landlords can claim on properties is also set to fall to 20% from April 2017.
In the run up to the stamp duty hike there was a boom in borrowing as buyers brought forward transactions to beat the deadline.
Residential property sales and mortgage approvals have plummeted since the rise in stamp duty. According to HM Revenue and Customs, residential property transactions in April were 45% down on the previous month. Meanwhile, the British Bankers’ Association said there were 40,104 mortgages approved for house purchase in April, down from 43,854 in March.
Jeremy Duncombe, director of Legal & General Mortgage Club, said: “Once again, house prices are rising at a seemingly unstoppable rate. Whilst many homeowners may be enjoying these perpetual increases in property value, for the overall health of the market, this is far from good news.
“A generation of aspiring homeowners are increasingly finding themselves priced out of the market, with property prices rising over four times faster than wages in some areas of the UK. Even those who already have a foot firmly on the ladder could struggle to take the next step, resulting in thousands of people across the country living in homes that are no longer suited to their needs, or in ‘second choice’ areas.
“Something needs to change. Demand is still dwarfing supply, and this imbalance is the true underlying issue that must be tackled. Real action is needed with the government and the industry working together to deliver tangible results in the short, medium and long term.”
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