House prices have leapt by 11.1% over the last year in the strongest annual growth seen since June 2007, building society Nationwide has reported.
The report covering May also marks the second month in a row where annual growth in property values has hit double digits, following a 10.9% year-on-year uplift in April.
But on a monthly basis, prices rose by 0.7% in May, which represents a slowdown compared with the 1.2% monthly increase seen in April.
Property values have now been edging up for 13 months in a row on a month-on-month basis. Across the UK, average house prices now stand at £186,512.
Robert Gardner, Nationwide’s chief economist, said it is “too early” to say whether the housing market is seeing the start of a cooling trend.
Mr Gardner said some signs of a slowdown may partly be due to toughened mortgage lending rules introduced in April, “which may take a few months to bed down”.
He continued: “With mortgage rates close to all-time lows and labour market conditions continuing to improve, underlying demand for homes is likely to remain strong.”
In a sign of what is to come, Nationwide’s figures were released after a Bank of England report showed yesterday that the number of mortgage approvals made to home buyers has recently fallen back to its lowest levels since last summer.
Some 62,918 mortgages worth £10 billion got the go-ahead in April, marking the lowest number since July and 17% below January’s peak of nearly 76,000.
The British Bankers’ Association (BBA) has said the Bank’s figures pour cold water on claims that Britain is experiencing an overblown housing boom.
New lending rules came into force at the end of last month under the Mortgage Market Review (MMR), with lenders gearing up for the clampdown in the weeks leading up to the deadline.
The MMR rules mean that mortgage applicants face more probing questions into their spending habits to make sure they can afford their repayments. Lenders also have to apply “stress tests” to make sure a mortgage would still be affordable to a particular borrower as and when interest rates rise.
Some reports have also suggested that potential home buyers are becoming more “resistant” to sharp rises in sellers’ asking prices amid the general debate over the potential for a housing bubble.
There has also been speculation that the Bank of England may take further steps to calm the market in the coming months, which could perhaps include putting new curbs on the Government’s flagship Help to Buy mortgage support scheme.
Mr Gardner said: “There have been tentative signs that activity in the housing market may be starting to moderate, with mortgage approvals in April around 17% below January’s high.”
Mr Gardner said that first-time buyers are playing an “increasingly important role in the housing market recovery” and made up 48% of house purchase activity in March.
People taking their first step on the property ladder have accounted for over 80% of Help to Buy loans so far - but the Nationwide report said the scheme appears to be playing a “supporting rather than a starring role” in the housing market recovery.
Mr Gardner continued: “The modest numbers involved so far suggest that Help to Buy is unlikely to be the main factor behind the recent pick-up in the housing market...
“Low mortgage rates and growing buyer confidence on the back of improving labour market conditions and the brighter economic outlook are probably playing a much greater role in stimulating buyer demand.”
Recent Government figures indicate that Help to Buy has had less of a direct impact in places like London where house price growth has been at its most heated and a stronger take-up in places where house price increases have been more moderate.