HOUSE prices rose 1.2% in May, leaving them 11.9% above their level in May last year - although sales were ''disappointing'', according to the Nationwide's seasonally adjusted house price index.

Despite the rise, the society's head of research, Dr Paul Sanderson, said: ''Although prices rebounded in May after a particularly weak rise in the previous month, an underlying slowing in the rate of increase since last summer remains.''

He said this was largely expected, and primarily reflected less rapid growth in London. However, property transactions have also fallen back, with recorded sales in the first four months of the year running more than 6% down on the same period of 1997.

''This is disappointing,'' said Sanderson, ''Although the recent buoyancy of mortgage approvals - up about 25% on a year ago - points to a renewed pick up in activity, it is clear much of the increase can be accounted for by remortgaging.''

Sanderson stressed that it is too early to conclude that the market's recovery has stalled. Conditions for house buyers remain favourable, with interest rates likely to be close to their peak and competitively priced mortgage deals, especially fixed rates, readily available.

Moreover, income growth remains robust and consumer confidence is close to the highs during the last boom, no doubt boosted by falling unemployment and rising house and share prices.

He said shortages of properties for sale remain a problem, but this should in time be resolved by higher prices, with rising equity bringing more buyers onto the market.

''We therefore continue to expect a slowing in prices this year to be accompanied by a modest increase in transactions. The possibility of a 'hard landing' for the wider economy remains the most obvious risk to this scenario.''