House prices rise but at a slower pace

House prices rose for the seventh consecutive month in January but at a more modest pace, according to the latest Halifax house price index.

Properties rose by 0.6 per cent in January, leaving house prices 3.6 per cent higher compared to a year earlier. Halifax said this is the largest increase in the annual rate of change - measured by the average for the latest three months against the same period a year ago - since February 2008.

The average house is now worth £169,777.

“The marked reduction in interest rates over the past 15 months has, from a low base, boosted housing demand from those with a sufficient deposit to enter the market. Increased demand has combined with a low supply of properties available for sale to push up prices,” says Martin Ellis, housing economist at Halifax.

But Ellis said the lender still believed house prices would be flat during 2010. He pointed towards signs that more people are putting their homes on the market which was likely to curb the upward pressure on prices.

Last week, the Nationwide house price index showed an increase of 1.2 per cent and a year-on-year gain of 8.6 per cent.

Experts said the surge was down to an overspill of demand from buyers trying and failing to push their transactions through before the stamp duty holiday came to an end.

Mark Blackwell of xit2, the mortgage firm, said the recent growth in house prices was unsustainable.

“First time buyers are the lifeblood of the property market but with the reintroduction of stamp duty and pay inflation at near zero properties are moving further away from the reach of these buyers. A fall in demand means a fall in prices. The election might help stabilise prices as sellers wait to see what actions the new government will take on HIPS and property tax but the general trend for 2010 will be bumpy.