The data from the Office of National Statistics (ONS) also shows that the average UK house price was £211,000 in May 2016, some £16,000 higher than in May 2015 and £2,400 higher than April 2016.
The ONS report says that the main contribution to the increase in UK house prices came from England where they increased by 8.9% over the year to May 2016, with the average price in England now £227,000.
Wales saw house prices increase by 3.6% over the latest 12 months to stand at £143,000. In Scotland, the average price increased by 4.0% over the year to stand at £141,000 and the average price in Northern Ireland is currently £118,000.
On a regional basis, London continues to be the region with the highest average house price at £472,000, followed by the South East and the East of England, which stand at £306,000 and £265,000 respectively. The lowest average price continues to be in the North East at £124,000.
London was also the region which showed the highest annual growth, with prices increasing by 13.6% in the year to May 2016. The South East at 12.9% and the East of England at 12.8% also had high annual growth. The lowest annual growth was in the North East, where prices increased by 3.2% over the year.
It is low interest rates, increasing employment and wage inflation that are supporting house price growth, according to John Goodall, chief executive officer of peer to peer platform Landbay.
But he pointed out that the index has yet to see the effects of Brexit on prices. ‘What is clear is that a lack of housing supply will remain a crucial issue. Theresa May's new government must now commit to further housebuilding pledges and recognise the increasingly important role the private rented sector plays in the housing mix,’ he added.
Rob Weaver, director of investments at property crowdfunding platform Property Partner, believes that housing activity was relatively mute in May due partly to a double whammy of tax changes, namely the stamp duty hike for second homes and the cuts to mortgage interest relief.
‘However, prices appear to be holding and even increasing in many areas due to the fundamental imbalance in supply and demand. Despite a recent slowing down in London, the capital still remains the engine of the housing market in the longer term, showing price rises more than almost double the annual rate of all other regions apart from the South East and East of England,’ he pointed out.
‘Following recent Bank of England announcements on softening monetary policy, it looks likely home owners mortgage interest payments will remain historically low for much longer than expected. This could help continue to support prices over the next 12 months,’ he added.
However, Jonathan Hopper, managing director of the buying agents Garrington Property Finders, pointed out that many buyers have become very cautious and are asking for big price reductions after the referendum vote and vendors who have to sell are starting to offer discounts, often big ones.
‘While the dust has yet to settle and it’s too soon to gauge how much prices have fallen, some sellers are already behaving as if a fall is coming. In response sophisticated, opportunistic buyers are beginning to swoop,’ he explained.
‘The pre-referendum seller’s market has gone, and buyers have regained the upper hand even if lack of supply is likely to prop up prices in the medium term. In less than a month, the property market has switched from a seller's to a buyer’s market,’ he added.
Alex Gosling, chief executive of online estate agents HouseSimple, believes that in the current climate, what happened to the property market in May is largely irrelevant. ‘In the wake of the EU Referendum result, it's now all about what happens to the property market next. And that's the big unknown,’ he said.
‘If the May rise imparts anything of note, it's how the underlying imbalance between supply and demand has the potential to prevent prices from falling materially. What's very clear is that home owners and prospective first time buyers will be watching the market intently over the coming months, each hoping for different outcomes,’ he added.
