The UK housing market is slowing in a controlled manner, with monthly rates of growth that are half those of a year ago, according to the FT house price index published on Friday.

House prices rose by 0.5 per cent in August compared with July, in line with the recent trend. The monthly rate has bounced between 0.5 and 0.3 per cent in the last four months - this is roughly half the rate of growth prevailing last year, when prices were rising between 1.1 per cent and 0.8 per cent in the last four months of the year.

The annual rate of increase was still a relatively high 9.3 per cent last month but this is because of last autumn’s rapid growth, which will soon drop out of the annual comparisions.

Peter Williams, chairman of Acadametrics, the consultancy that produces the FT index, said the figures continued: “the broad pattern of a stable rate of annual increase which we have been reporting since the beginning of the year.”

But he added: “Even at this level it is high in relation to average wage increases and in that sense is unsustainable in the long term. The shortage of supply along with the continued growth of the economy are key drivers of this continued trend.”

The national average is skewed upwards by London house prices, which continue to outpace other regions. Prices in the capital rose by 1.4 per cent in July compared to June but at least did not accelerate from June’s 1.4 per cent growth.

Stripping London out would reduce the national annual rate to 7.2 per cent. “The London effect is getting greater over time, reflecting the fact that the market there is out of kilter with the rest of England and Wales. The London ‘effect’ is now over 2 percentage points,” said Mr Williams.

However, he said that the housing market was likely to continue to slow as this year’s three interest rate rises took effect and as some mortgage rates crept up in response to the fallout from the US sub-prime mortgage market.

This week Halifax reported a 0.4 per cent increase in house prices in August compared to July, and an annual increase of 11.4 per cent. This was similar to Nationwide’s finding, published last week.

The FT index is more comprehensive than the lenders’ data, since it is based on the final sale price of every transaction recorded by the Land Registry. The lenders’ figures are based on agreed prices of a sample of properties needing a mortgage.

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