Rising house prices in London boost national growth to 6 per cent

Jane Padgham
Monday 29 January 2007 01:42 GMT
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Britain's housing market has started the year in good shape thanks to boom conditions in London. The average price of a home rose by 0.4 per cent in January, according to Hometrack, the housing information business. That pushed the year-on-year rate of increase up to 6 per cent, the fastest pace at which prices have been rising for three-and-a-half years.

Richard Donnell, Hometrack's director of research, said big gains in London - where prices were boosted by City bonuses and a lack of supply - had put a gloss on the figures. The capital's strength rippled out to commuter areas, which also recorded above-average price rises.

"Our survey shows that while prices remained unchanged across 72 per cent of the country in January, the majority of rises were concentrated in London where values grew by 0.8 per cent," Mr Donnell said. "House price growth across all other regions was below average, ranging from no change in the East Midlands to 0.3 per cent in the South-east and East Anglia."

Mr Donnell said the impact of the recent Bank of England decision to raise interest rates on demand had yet to be seen. However, figures from the British Bankers' Association on Friday showed a sharp drop in mortgage approvals in December, a sign that higher borrowing costs are starting to bite.

Hometrack's current prediction is for 4 per cent house price growth this year, with increases primarily driven by a lack of property for sale. The group's estimate sits at the lower end of the range of forecasts for house price inflation during 2007, with some analysts predicting rises of up to 10 per cent.

The Centre for Economics and Business Research predicted another year of healthy house price growth in 2007 yesterday but said a dramatic slowdown was on the cards for next year. It has pencilled in a forecast of 7.6 per cent for this year, dropping to just 1.5 per cent in 2008.

Jaspreet Sehmi, an economist at the CEBR, said: "Despite the recent interest rate rises, we expect to see no immediate impact on house prices as other factors, such as the continued strength of the financial services sector, remain more important. By the end of the year, however, prices will begin to slow and, although we continue to expect growth in 2008, it will be much more limited."

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