LONDONBritish house prices rose faster than expected in May but are likely to increase less over the next year as tighter lending conditions and concerns about the sector weigh on demand, a survey showed on Thursday.
The Royal Institution of Chartered Surveyors (RICS) said its main house price balance ticked higher to +57 last month from an upwardly revised +55 in April.
That was above a forecast of +52 in a Reuters poll and close to March's +58, the highest reading in 12 years.
The strength of the housing market has raised questions about how long the Bank of England can refrain from raising interest rates.
The BoE has said it would prefer to deal with any overheating through mortgage controls first, so that a premature interest rate rise does not derail a broader economic recovery.
BoE policymaker Ben Broadbent also said on Wednesday that rising house prices themselves were not a worry and that the BoE's focus was on leverage, which was not yet a concern.
Part of its reticence is also to do with the fact that recent data has sent more mixed signals on the housing market.
Mortgage approvals have been falling in recent months and the RICS survey has shown falling numbers of new homes coming on to the market-something which continued in May's survey.
London, where prices have been rising fastest, saw the first fall in demand for new homes since June 2012.
Surveyors' expectations of house prices over the next year was also at their lowest since December. They expected house prices to rise 3.6 percent over the next 12 months, compared with a forecast in April for a 3.9 percent rise.
"Part of it might be the impact of the mortgage market review, part of it might be because there has been a lot of bubble talk in the media, and part of it is the Bank of England's rhetoric recently which would have shaped expectations to some extent," said Josh Miller, senior economist at RICS.
Tougher rules for mortgage lenders came into force in April, requiring stricter checks on borrowers' ability to repay their loans and cope with higher interest rates.
"The BoE has essentially been making signals that they are to some extent concerned, and inevitably that would have filtered through to expectations," he added.
BoE Governor Mark Carney has said the momentum in the housing market poses the biggest threat to the British economy, which has seen a surprisingly fast recovery over the past year.
It is expected to announce new mortgage controls later this month after its Financial Policy Committee meets on June 17.