UK House Price Index: May 2015

• UK house prices increased by 5.7% in the year to May 2015, up from 5.5% in the year to April 2015

• House price annual inflation was 5.8% in England, 2.5% in Wales, 2.9% in Scotland and 10.5% in Northern Ireland

• The pace of annual house price growth increased slightly across the majority of the UK in May 2015

• Annual house price increases in England were driven by an annual increase in the East (9.3%) and the South East (8.2%)

• Excluding London and the South East, UK house prices increased by 5.2% in the 12 months to May 2015

• On a seasonally adjusted basis, average house prices increased by 0.9% between April and May 2015

• In May 2015, prices paid by first-time buyers were 5.1% higher on average than in May 2014. For owner-occupiers (existing owners), prices increased by 5.9% for the same period

The Office for National Statistics (ONS) House Price Index (HPI), previously published by the Department for Communities and Local Government (DCLG), is a monthly release that publishes figures for mix-adjusted average house prices and house price indices for the UK, its component countries and regions.

The index is calculated using mortgage financed transactions that are collected via the regulated mortgage survey by the Council of Mortgage Lenders. These cover the majority of mortgage lenders in the UK. The HPI complements other measures of inflation published by us such as the consumer price indices, the producer price indices and the services producer price indices.

This statistical bulletin provides comprehensive information on the change in house prices on a monthly and annual basis. It also includes analysis by country, region, type of buyer (first-time buyers and former owner-occupiers) and type of dwelling (new dwelling or pre-owned dwelling). Historical series for all accompanying tables that transferred from DCLG are also available in the data section of this release.

The figures published in this release are not seasonally adjusted unless otherwise stated.

UK average house prices increased by 5.7% over the year to May 2015, up from an increase of 5.5% in the year to April 2015 (Figure 1). The average UK mix-adjusted house price in May 2015 was £274,000.

In May 2015, the UK mix-adjusted house price index increased to a record level of 210.2, and is now 0.2% higher than the previous record level witnessed in March 2015 (Figure 2). The UK index is now 13.3% higher than the pre-economic downturn peak of 185.5 in January 2008.

On a seasonally adjusted basis, average house prices increased by 0.9% between April and May 2015, compared to an increase of 0.8% in average prices during the same period a year earlier.

During the year to May 2015, average house prices increased 5.8% in England (the same as in the year to April 2015), 2.5% in Wales (up from 1.3%), 2.9% in Scotland (up from 2.2%) and 10.5% in Northern Ireland (up from 8.8%).

In May 2015, the England house price index increased to a record level (Figure 4).

The index for England reached 208.3 in May 2015. This is 0.6% above the previous record level witnessed in March 2015 (207.0) and 15.2% higher than the pre-economic downturn peak in January 2008 of 180.8. The index for Scotland (227.2) in May 2015 is 6.6% below the record level witnessed in March 2015 (243.2). Scotland prices are now 1.5% below the pre-economic downturn peak of June 2008 (230.6). The index for Wales (219.1) in May 2015 is 2.4% below the record level of 224.6 in January 2015. House prices in Wales are 1.4% lower than the pre-economic downturn peak of January 2008 (222.1). The index for Northern Ireland (159.5) in May 2015 is 43.3% below the peak of August 2007 (281.5)

The pace of annual house price growth picked up in 5 of the 9 English regions in May 2015 (Figure 5). The largest annual increase was in the East at 9.3% (down from 9.6% in the year to April 2015) followed by the South East (8.2% increase in the year to May 2015, down from 8.4%). The lowest growth in May 2015 was in the North East; here prices increased by 1.9% over the year (up from 1.2% in April 2015). London prices increased by 4.7% over the year to May 2015 (up from 4.3% in the year to April 2015).

Excluding London and the South East, UK house prices increased by 5.2% over the year to May 2015, up from 5.0% in the year to April 2015.

This month, average house prices in 3 of the 9 English regions (East Midlands, East and London) are at record levels (Figure 6).

The price index for the East Midlands reached a record level of 200.6 in May 2015. This is up 0.8% from the previous record level of 199.1 in April 2015. The price index for the East Midlands is 3.7% higher than the pre-economic downturn peak in January 2008 (193.5). The price index for the East reached a record level of 195.5 in May 2015. This is 1.1% higher than the previous record in March 2015 (193.3) and 16.1% higher than the pre-economic downturn peak in January 2008 (168.4). The price index for London increased to a record level of 244.3 in May 2015. This is 0.3% higher than the previous record in August 2014 (243.5) and 40.0% higher than the pre-economic downturn peak in January 2008 (174.5).

Average mix-adjusted house prices in May 2015 stood at £286,000 in England, £170,000 in Wales, £152,000 in Northern Ireland and £193,000 in Scotland (Figure 7).

In May 2015, London continued to be the English region with the highest average house price at £503,000 and the North East had the lowest average house price at £154,000. London, the South East and the East all had prices higher than the UK average price of £274,000.

Excluding London and the South East, the average UK mix-adjusted house price was £210,000.

The average price for properties bought by first-time buyers increased by 5.1% over the year to May 2015, down from an increase of 5.8% in April 2015 (Figure 8). In May 2015, the average price paid for a house by a first-time buyer was £211,000.

The average price for properties bought by former owner-occupiers (existing owners) increased by 5.9% in the year to May 2015, up from an increase of 5.4% in April 2015. In May 2015, the average price paid for a house by a former owner-occupier was £317,000.

During the year to May 2015, prices paid for new dwellings increased by 10.1% on average, compared with an increase of 9.0% in the year to April 2015 (Figure 9). The average UK house price for new dwellings in May 2015 was £277,000.

During the year to May 2015, prices paid for pre-owned dwellings increased by 5.3% on average, compared with an increase of 5.3% in the year to April 2015. The average UK house price for pre-owned dwellings in May 2015 was £273,000.

The UK housing market showed some signs of picking up in May 2015. The annual rate of house price growth increased to 5.7%, with prices growing by 0.9% on a seasonally adjusted basis in May. While this annual growth rate remains below those seen in 2014, May’s stronger growth figures suggest a pick-up in housing market activity, possibly driven by a continuing mismatch between supply and demand. A number of broader indicators support this view, with improving economic conditions sustaining a recovery in housing demand while supply remains tight.

On the demand side, a number of releases from the Bank of England have highlighted subdued demand for mortgages in recent months, possibly reflecting more caution from buyers and the impact of the Mortgage Market Review. However, the Bank noted that demand was expected to increase in the second quarter of this year. Mortgage approvals, a leading indicator of housing purchases, were 5.8% higher in the three months to May than in the preceding three months. The increase in mortgage borrowing comes as the share of cash purchases in the housing market reached an all time high in Q1 2015. Nationwide estimated that 38% of properties were sold to cash buyers in the first three months of 2015, with the low interest rate environment and squeezed mortgage lending encouraging the flow of cash into UK residential property. This growing demand is reflected in transaction levels, with HMRC statistics showing that the number of homes bought in the three months to May were 4.9% higher than the preceding three months.

While housing demand appears to have strengthened, the supply of housing remains low. The ONS’ Output in the Construction Industry showed that house building contracted by 5.8% in May. RICS’ Residential Market Survey noted that in May the average housing stock per surveyor fell to its lowest level since 1979, as the number of homes coming onto the market has not kept pace with the growing number of transactions. RICS also noted that buyer demand increased at its fastest pace in more than a year, with these tight conditions underpinning market prices.

Broader economic indicators suggest that the economy continued to grow relatively strongly during the first quarter of 2015, which may in turn feed into consumer expectations of the housing market. Labour market conditions have continued to improve, as unemployment remained at 5.5% in the three months to April 2015 and pay continued to increase. Recent weakness in inflationary pressure and a return of real earnings growth have also improved the economic position of households, with possible implications for the evolution of house prices.

In March 2015, a joint¹ formal response was published to the October 2014 user consultation on the development of a single, official house price index. Since then, work has been focussed on securing the necessary approval for implementation of the new house price index, taking forward the legal work to secure access to property attributes data and further investigating the commitments made in the consultation response.

Good progress has been made in a number of areas. Firstly, each of the departments involved has now had approval for implementation of the new index. Secondly, in response to feedback from the consultation, the use of GOV.UK has been investigated as a central publication point for the new index. As a result of this investigation, it is proposed that the new UK house price index will be published via the Land Registry pages of GOV.UK providing a single and central access point for users. Further details will be made available in due course.

However, securing the access to property attributes data has been slower than anticipated, which has meant the analysis required to finalise the methodology for the new index has been delayed. It is expected that this access should be resolved shortly.

Over the next few months the focus of the development work will be to:

• Finalise access to the data required for the new index. This will allow the index methodology to be finalised and subsequently an article to be published fully explaining the new methodology and production process for users.

• Begin testing the production of the new index.

• Begin planning the implementation of the new index and the transition for users. Further details regarding the transition for users will be made available later in the year.

Whilst there is still a large amount of work to take forward, it is anticipated the new index will be ready for publication in the first half of 2016.

For further information, please contact HPI@ons.gov.uk

Notes for Development of a single, official house price index - progress update

1. Land Registry, Land and Property Services, Northern Ireland, Office for National Statistics and Registers of Scotland

The HPI monthly and quarterly reference table (3.6 Mb Excel sheet) provides full historical series for the monthly tables accompanying the house price index statistical bulletin. This month, tables 1 to 9 have been updated with the latest monthly estimates for May 2015. The seasonally adjusted figures in Table 7 have been revised this month as scheduled.

The HPI annual reference table (1.19 Mb Excel sheet) contains all the annual live tables. This month tables 20, 21, 29, 30, 35, 36, 37, 38 & 39 have been updated with 2014 data. The next set of updates to annual tables will be in March 2016.

The HPI weights summary (83.5 Kb Excel sheet) reference table provides a summary of the aggregated mix-adjustment weights used in the production of the HPI for the period 2007 to 2015. The mix-adjustment weights are updated in the February HPI each year.

We would welcome your views on the data presented in this statistical bulletin. Please contact the house price index team using the email address below to discuss any aspect of the data, including your views on how we can improve the data.

hpi@ons.gov.uk