Annual house price growth hits 9.6%

House prices rose by more than expected last month, according to a report published on Thursday, another sign that two recent increases in interest rates have so far been easily absorbed by the market.

In its latest survey of residential property, the Halifax, Britain’s biggest mortgage lender, said the average house price was £187,995 in November, up 1.7 per cent on the October reading, and the fifth consecutive month of gains.

This takes annual house price growth to 9.6 per cent, up from 8.6 per cent in October, and means that inflation is nearly double the Halifax’s forecast of a 5 per cent increase for 2006.

Analysts had pencilled in a month-on-month rise in prices for November of 0.8 per cent. Although the headline numbers far exceeded these expectations there was little move in the money markets as traders calculated they did little to alter the immediate prospects for monetary policy.

The Bank of England’s rate-setting body announces on Thursday its latest decision on interest rates, with most economists believing they will leave the cost of borrowing at 5 per cent.

Richard McGuire at RBC Capital Markets said the Halifax report was “much stronger than expected and, via its positive implications for consumer demand, is keeping the door open to a possible further firming of UK policy – but not today.”

The monetary policy committee does not seek directly to target house prices as part of its remit to contain inflation, but its members are aware of the potentially destabilising effect of any over-exuberance and a number have made clear they are uncomfortable with the pace of house price growth.

Mervyn King, Bank of England governor, warned last week that “if there were a change in the general level of real interest rates around the world economy, then all asset prices would be affected, house prices too.”

The Halifax said that for now the housing market was being buoyed by a lack of homes for sale, rising employment and an economy that had enjoyed 57 successive quarters of growth.

However, Martin Ellis, Halifax chief economist, adopted a cautious tone when addressing the market’s medium term prospects.

“The marked slowing in real average earnings growth over the past six months, and a squeeze on households’ discretionary income due to the substantial increase in utility bills during the last year, should temper housing demand. As a result, we expect house price inflation to ease over the coming months.”

The FT House Price Index, which aims to be among the most comprehensive and timely indicators of prices in England and Wales, showed annual growth of 6.6 per cent in October. New FTHPI data for November is due for release on Friday.