Housing market continues to gain pace with 0.4% rise in May according to figures from Nationwide building society
House prices increased by 0.4% in May according to figures from Britain's biggest building society, which said there are "reasons for optimism" that activity will continue to gain momentum,
Nationwide's latest house price index showed the average price of a UK home increased to £167,912 during the month, up 1.1% on May 2012's figure.
That is the highest annual inflation figure recorded by the society since November 2011, and compares with a 0.7% year-on-year fall seen a year ago.
The three-month on three-month figures, which offer a less volatile picture of the housing market than single monthly figures, were in positive territory for the eighth consecutive month and showed a rise of 0.4%.
The figures are the latest sign of life in the housing market, which has been gaining momentum since autumn when the government's plan to make more mortgages available through its funding for lending scheme started to filter through to buyers.
Since then, it has announced the Help to Buy scheme for first-time buyers and movers with small deposits, and launched the first part, which provides equity loans to buyers of new-build properties.
Although transaction levels remain below historical norms, competition for homes has been increasing in some areas of the country, leading some commentators to warn Help to Buy risks fuelling a house price bubble.
"It's not just prices – a number of measures of housing market activity have also started to move higher," said Nationwide's chief economist, Robert Gardner.
"In the first four months of 2013 the number of property transactions was running at around 5% above the monthly average prevailing in 2012. The number of mortgage approvals for house purchase in the first quarter of 2013 was also around 4% above last year's monthly average."
Gardner said that alongside cheaper mortgage deals, the improved outlook in the wider UK economy may be making homebuyers more optimistic.
"Widespread expectations that the economy will continue to recover gradually in the quarters ahead, that interest rates will remain low, and the ongoing impact of policy measures aimed at supporting the availability and lowering the cost of credit all provide reasons for optimism that activity will continue to gain momentum in the quarters ahead," he said.
However, he said there were factors that could drive prices down, including a slowdown in employment growth and pressure on household budgets from inflation.
"In real terms [after taking account of inflation] average weekly wages have been falling for some time and are now back at the level prevailing in late 2003," Gardner added.
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