The latest House Price Index from the Nationwide Building Society has found that while house prices rose by 0.3% last month, the annual pace of house price growth slowed to 4.6%.

This resumes the gradual downward trend that had been in evidence since the summer of 2014, which was briefly interrupted in April when price growth edged up to 5.2% from 5.1% in March. Annual house price growth is now running at less than half the pace prevailing in mid-2014.

Robert Gardner, chief economist at the Nationwide, said: ‘Over the longer term we would expect house price growth to converge with earnings growth, which has typically been around 4% per annum. However, much will depend on supply side developments – in recent years the rate of building activity has remained well below that required to keep up with population growth.

“We estimate that the share of cash purchases in the housing market reached an all-time high of 38% in Q1 2015. Continued healthy demand from cash buyers has helped to support transaction levels in recent quarters, since mortgage lending has remained relatively subdued. For example, in Q1 2015 overall housing transactions were down by around 5% compared with Q1 2014, while mortgage completions were around 11% lower.

“Though the 38% share was a record, it was only modestly above the average of 36% prevailing in 2014. The significant rise in the share of cash transactions occurred in the wake of the financial crisis, where a tightening in
credit conditions and a deterioration in the labour market limited the number of people able to buy with a mortgage (developments which would have had much less of an impact on cash buyers).

“The low interest rate environment is likely to have supported the flow of cash into other asset classes in recent years, including UK residential property.

“Interestingly, the data suggests that the share of cash purchases in London is not out of line with the rest of the UK. On the surface, this may seem surprising, given the greater involvement of investors (domestic and overseas) in the London property market.

“A limiting factor may be that house prices in the capital are over twice as high as the rest of the UK (£408,780 versus £188,566 in Q1 2015 on our measure).”

Rob Weaver, head of investments at property crowdfunding platform Property Partner, said the ongoing slowdown in the annual pace of house price growth is good news.

He said: “A year or two ago prices were rising at an unsustainable rate and if that had continued, things would have unravelled just as quickly.

“The kind of growth we are seeing at present is positive without being disproportionate.

“For house prices to consistently converge with earnings growth, however, may be asking a lot given the systemic lack of supply.

“And although the percentage of cash purchases has reached an all-time high, that level may well fall given this week’s strong mortgage approvals data.

“2015 is not going to be a 2014 in terms of house price growth but with low interest rates and living costs, and strong employment, it’s certainly not going to underperform.”