House prices increased slightly in March, but a quarterly gain of just 1.6% suggests the market rebound may again be beginning to level off, according to the latest Halifax House Price Index.
Last month saw house prices increase by 0.9%, while the total rise in the first quarter of 2006, was just 1.6%, a smaller rise than the 2.3% gain in the last three months of 2005. The standardised average house price is now £175,215.
This brings the annual rate of house price inflation to 6.2%, which although showing a strengthening in price growth compared to the 3% in the third quarter of 2005, it is still significantly less than the 9.7% of this time last year.
Halifax says the latest figures suggest the level of housing market activity may be levelling out following a marked improvement during the second half of 2005, as the number of mortgage approvals fell for the first time in 15 months, during February.
Meanwhile, the biggest house price rises in the first quarter were in Wales with a rise of 4.5%, followed by a 3.4% rise in East Anglia, while in the East Midlands house prices increased by 3%. And for the first time the average house price in both the East Midlands and Wales passes the £150,000 mark.
The figures also reveal the annual rate of house price inflation has slowed in all regions of the UK over the past year, with the exception of Greater London where the increase in the past 12 months of 7.2% outstrips the gain in the previous year of 1.1%.
Halifax says housing demand remains well underpinned by a strengthening economy, high employment and low interest rates, but warns a weakening labour market, the continuing high level of house prices in relation to earnings and extra pressure on householders finances are expected to curb demand.
However, Halifax says UK house prices are still forecast to rise by 3% during 2006, to keep broadly in line with the predicted rise in retail price inflation.
The data also reveals the north-south divide on house prices is now the smallest it has been for eight and a half years, as faster house price growth in the north over the last 12 months has caused the ratio between prices in the north and south to narrow.
In the first quarter of 2006, the average house price in the south stood at 1.56 times the average in the north, compared with a peak of 2.19 times in the second quarter of 2002, and is well below the 1.69 average recorded since 1983.
In monetary terms it means the difference between the average price in the two regions has fallen by £12,350 over the past two years with prices in the south £79,400 higher than in the north during the first three months of 2006, which is £19,600 lower than in 2003 when the difference stood at a record £99,000.
Martin Ellis, chief economist at Halifax, says despite the increase in March and the average house price breaking the £175,000 barrier for the first time, the rise in prices in the first three months of 2006 was smaller than the gains recorded in the two final quarters of 2005 and warns there are also signs that housing market activity may be beginning to level off.
He adds: “The weakening in the labour market, the continuing high level of house prices in relation to earnings and pressure on householders’ finances from the recent hikes in utility and council tax bills are all expected to curb demand in the coming months, therefore preventing a sustained acceleration in house price inflation.”
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