UK house prices up 0.5 m/m in May

House prices in Britain rose by 0.5 percent in May, half the rate of the previous two months but enough to lift property values within 10 percent of their 2007 peak, a survey showed on Thursday.

The Nationwide building society said the increase meant prices had risen 12.2 percent since February 2009 and were just 9.5 percent below the high scaled in October 2007.

The annual rate of increase fell however to 9.8 percent from 10.5 percent, reflecting the weaker pace of increase in May this year compared to last.

House prices have risen in 12 of the past 13 months on the Nationwide index, although the pace of growth appears to be slowing. May's increase followed an upwardly revised 1.1 percent jump in April and a 1.0 percent rise in March.

The rebound in property prices over the past year has been fuelled by record low interest rates and limited supply. While the former is likely to remain a supportive factor, anecdotal evidence suggests more properties are starting to come on to the market.

Martin Gahbauer, Nationwide's Chief Economist said current supply and demand dynamics were consistent with "relatively stable to modestly upward trending prices."

He said the future outlook for the market could depend on the government's plans to increase capital gains tax.

"If there is a significant time lag between the announcement of the increase and its actual implementation, then second home owners and buy-to-let landlords may decide to sell in advance," Gahbauer warned.

Britain's coalition government had pledged to raise capital gains tax closer to income tax, although precise details will not be known until the annual budget on June 22.