British house prices rose at their slowest annual rate in nearly two years in May, as growth continued to moderate after double-digit increases in the middle of 2014, figures from mortgage lender Nationwide showed on Wednesday.

Nationwide said house prices in May were 4.6 per cent higher than a year before, the smallest annual increase since August 2013 and down from a rate of 5.2 per cent in April.

House price inflation hit a peak of 11.8 per cent in June last year, but eased as regulatory restrictions on mortgage lending took effect, and Nationwide said cash buyers now accounted for a record 38 per cent of purchases.

Nationwide said it expected house price rises to average 4 per cent a year over the long term, in line with pre-crisis rates of wage growth, assuming sufficient homes are built.

"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," Nationwide chief economist Robert Gardner said.

Last month alone, house prices rose 0.3 per cent compared with a 1 per cent increase in April, in line with average forecasts in a Reuters poll of economists.

May saw prime minister David Cameron’s Conservative Party unexpectedly win an outright parliamentary majority in a national election. The Conservatives want to boost falling rates of home ownership, but critics say they are not doing enough to boost the supply of homes alongside stoking demand.

Growth among Britain’s housebuilders picked up in May, a survey from Markit/CIPS showed on Tuesday.

Many economists expect house prices to pick up more rapidly after the slowdown in recent months. Also on Tuesday, figures from the Bank of England showed the biggest jump in the number of mortgages being approved in over six years, taking April’s total to the highest in 14 months.

"There are signs of an underlying firming in house prices," IHS Global Insight economist Howard Archer said. "Activity will benefit from largely favourable fundamentals and reduced uncertainty following the decisive general election result."

A poll of economists by Reuters published on Tuesday showed that on average, economists expect house prices to rise by 6 per cent this year and 5 per cent 2016, up sharply from forecasts they made three months ago.

Reuters