UK house prices rise 0.7% in February

A shortage of properties for sale helped push annual house price inflation back into double digits in February, but higher interest rates and stretched affordability are causing demand to weaken, the Nationwide said on Wednesday.

The average price of a home was £174,706, a month-on-month increase of 0.7 per cent.

This was the 12th consecutive month that prices have gone up. Exceeding the 0.3 per cent rise in January, the February figure left annual house price inflation at 10.2 per cent, according to the UK’s biggest building society.

This latest snapshot of the housing market runs somewhat counter to recent surveys that have painted the picture of a market that is cooling in the face of rising interest rates and the high cost of houses relative to earnings.

But Fionnuala Early, Nationwide chief economist, said that though the market appeared to be taking longer to respond to rate rises, the recent monetary tightening was starting to stymie buyer interest and mortgage demand.

“For now, supply issues are keeping an upward pressure on prices as property sales have continued to rise, while the number of properties placed on the market has been falling. However, demand indicators suggest that the tightness in the market will soon begin to ease,” said Ms Early.

“By the second half of 2007, we continue to expect to see a more pronounced slowdown in the annual rate of house price growth.” she continued.”This will be a reflection of higher interest rates and stretched affordability curbing the demand of residential buyers, along with some slowdown in buy-to-let demand.”

Howard Archer at Global Insight, a consultancy, said the report showed the housing market “has still got considerable life left in it”.

“Nevertheless, the January and February data taken together hint that the housing market could be starting to lose buoyancy.”

Markets reacted little to the stronger than expected Nationwide report, with traders more concerned about about the ramifications of Tuesday’s and Wednesday morning’s global equity sell-off.