Monthly increase in house prices is highest for six years

House prices have posted their highest increase in a single month for six years in May, with valuations driven up by London and the South East.

The capital enjoyed a 0.9 per cent increase in prices while the rest of the South East saw home values rise by 0.5 per cent, according to figures from property analysts Hometrack.

Prices across the rest of the country averaged a 0.1 per cent rise, taking the national average to a 0.4 per cent increase – the highest monthly jump since May 2007.

In London, the rise in prices was driven by the gap between supply and demand widening to its largest since Spring 2009.

According to the data, demand over the last six months grew 15 per cent while supply edged down 0.6 per cent. Demand also rose ahead of supply in the rest of the country, although not to the same extent.

Analysis by Hometrack suggested that the high cost of moving, uncertainty over jobs and a lack of available housing to move to had left homeowners unwilling to put their own properties on the market, squeezing supply.

Hometrack's Richard Donnell said: "The impetus for rising house prices is originating almost exclusively from London and the South East. Elsewhere, housing market conditions are improving gradually."

Separate figures also out today suggested a future surge in sales as the number of buy-to-let mortgage applications has risen by 11 per cent since March.

Sequence, the firm behind estate agents Barnard Marcus, William H Brown and Fox & Sons, said buy-to-let landlords were enjoying "perfect conditions", with applications rising 26 per cent from a year ago. Meanwhile, the number of new rental properties coming onto the market in the UK this year is already 27 per cent higher than the same time a year earlier, "which has eased pressure on rents to rise", according to Stephen Nation, head of lettings at Sequence.

He added: "The number of new tenancies agreed is on course to reach a two-year high by the end of the summer (up 19 per cent annually), which signifies a more permanent shift of tenants to the rental market."