House prices surged ahead in May

House prices jumped 2.6 per cent during May in a further sign that conditions in the property market are improving, figures showed today.

The increase was the biggest jump in prices since October 2002 and left the average UK property costing £158,565, according to Halifax.

The lift also helped reduce the annual rate at which house prices are falling, from a record 17.7 per cent in April to 16.3 per cent - based on the average house price during the past three months compared with the same period a year earlier.

But Halifax cautioned against reading too much into the increase, warning that even during a pronounced downturn house prices did not always move in the same direction month after month.

However, it added that there were some "tentative indications" that activity was stabilising, albeit at a low level.

The figures are in line with those reported by Nationwide last week, which showed house prices rising by 1.2 per cent during May, following a fall of just 0.3 per cent in April, while the annual rate of decline slowed to 11.3 per cent.

There has been a run of positive data on the housing market recently, with the Bank of England saying mortgage approvals for house purchase rose for the third month in a row during April, to stand at their highest level for just over a year.

Estate agents are also continuing to say buyers are returning to the market, tempted by record low interest rates and recent house price falls, while other house price indexes are either reporting price rises or a slowdown in the rate at which they are falling.

There is also evidence that first-time buyers, often described as the lifeblood of the property market, are returning, with people buying their first home accounting for 40% of homes purchased with a mortgage during March - the highest level for four years.

But despite the pick-up in activity, economists still expect property prices to fall further as rising unemployment and the continuing problems in the mortgage market continue to act as a brake on property sales.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The Halifax data are bound to heighten speculation that the housing market is turning as it is fuelled by sharply reduced mortgage interest rates and the substantial fall in house prices from their 2007 peak levels.

"However, we remain sceptical that house prices have bottomed out. Housing market activity is still very low by past norms and at a level consistent with falling house prices.

"Furthermore, despite markedly rising buyer interest, we believe that the pick-up in actual house purchases is likely to be be gradual and fitful for some time to come given ongoing tight credit conditions and still relatively poor economic fundamentals."

Nitesh Patel, housing economist at Halifax, said: "House sales remain substantially below their long term average and market conditions are expected to remain difficult with housing activity continuing at low levels over the coming months."