House prices rise 1.2% in January

House prices started the year on a strong footing, rising by 1.2 per cent during January, figures showed today.

The latest increase, which was more than double the 0.5 per cent rise seen in December, left the average UK home costing £163,481, a level last seen in August 2008.

The rise also pushed annual house price growth up to 8.6 per cent, compared with 5.9 per cent in December, according to Nationwide Building Society.

The group said that, unless there was a fall in house prices during February, annual house price inflation was likely to move into double digits next month for the first time since May 2007.

Martin Gahbauer, Nationwide's chief economist, said: "House prices strengthened their upward momentum at the start of 2010, increasing by a seasonally adjusted 1.2 per cent month on month in January."

Some commentators had expressed concern that house prices would fall during the early part of this year, as the market slowed down after people rushed to complete transactions of lower value properties before the Government's stamp duty holiday finished at the end of December.

Nationwide had also reported that the monthly rate at which prices were rising had either fallen or stayed the same during the past four months, dropping from a rise of 1.4 per cent in August to one of only 0.5 per cent in December.

But January's strong increase suggests the current imbalance between supply and demand is continuing to offer support to house prices.

Figures from the British Bankers' Association, released earlier this week, also showed that the number of new mortgages approved for house purchase rose to its highest level since September 2007 during December.

However, despite the current buoyancy, many commentators expect house prices to end 2010 at around the same level they started it, rising during the early part of the year, before falling back again during the second half.

The outlook for the housing market is heavily dependent on how well the economy performs during the coming year.

Nationwide pointed out that UK average earnings growth had fallen to its lowest level on record, as employers opted to freeze or cut workers' pay as an alternative to making redundancies.

It said that, while this had helped to prevent a flood of repossessed homes coming on to the market, it did mean that the recent run of price increases had had a bigger impact on affordability.

The group also warned that higher-than-expected inflation may cause the Bank of England's Monetary Policy Committee to start raising interest rates again sooner than previously expected, further impacting affordability and denting demand.