Small rise in house prices

House prices edged ahead by 0.3% during May (MATT CARDY / GETTY IMAGES)

House prices edged ahead by 0.3% during May as the property market continued to trade sideways, figures showed today.

The rise, which offset April's 0.2% fall, left the average home costing £167,208 - 1.2% less than a year earlier, according to Nationwide Building Society.

Robert Gardner, Nationwide's chief economist, said: "Overall, the modest pace of house price growth in May suggests that the property market is continuing to mirror the lacklustre trends evident in the wider economy."

The quarter-on-quarter change, which is generally regarded as a smoother indicator of housing market trends, was broadly stable, with prices rising by 0.6% during the three months to the end of May, compared with a 0.7% rise during the previous three-month period.

House prices have now risen during five of the past 12 months, while they have remained unchanged in three of them and fallen in four, as the market struggles for direction.

Nationwide said the modest improvement in economic conditions had so far been insufficient to pull the property market out of its "torpor", with household budgets remaining under pressure due to high debt levels and inflation rising at twice the pace of wage increases.

It added that, although the house price to earnings ratio, a key measure of affordability, was now well below the peak levels seen in 2007, it remained above the long-term average.

The group said that, while the economic outlook remained uncertain, house prices were likely to trade sideways for the rest of the year.

The latest figures come after the property market endured a difficult month in April, as people put moving plans on hold while they enjoyed the extended bank holiday weekends.

Halifax reported a 1.4% price slide during the month, while the Council of Mortgage Lenders said lending levels dived by 14% compared with March.

But a report by the National Association of Estate Agents was more upbeat, saying sales levels remained stable during the month at an average of eight per branch.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Despite the recent slightly firmer tone in house prices reported by the Nationwide, we believe that modest overall falls in house prices are more likely than not over the rest of 2011 and the first half of 2012."

Ed Stansfield, chief property economist at Capital Economics, said: "The latest rise in the Nationwide house price index adds to the impression that the market is struggling for direction and that the second leg of the house price correction is likely to be a slow, drawn-out affair.

"With official interest rates unlikely to rise this year or next, barring another major economic or financial market shock, the pace of further house price falls both this year and next is likely to remain more moderate than in 2008."