House prices increased by 1.4% in January bringing the annual growth rate to 4.4%, according to the latest Nationwide house price report.
The figures reveal the average house price in January was £158,478 compared with £157,250 in December.
Fionnuala Earley, Nationwide’s group economist, says: “This is the strongest monthly rate of growth since July 2004 when it was 1.9% and the annual rate of house price inflation was 20%. The annual rate of house price inflation in January 2006 is a more modest 4.4%. Even so, this is a significant increase in price and confirms the strengthening trend we have seen since October.”
Three quarters of the 4.4% increase came in the last four months and Earley says at least part of the pick-up reflects a release of some pent-up demand following the cut in interest rates in August and the increased confidence of buyers and sellers as they became more comfortable the market was heading for a soft landing.
She adds: “The continued pickup in mortgage approvals suggests that the market will strengthen further over the next few months.”
115,000 mortgages were approved for house purchase in November and Earley says this number has risen throughout 2005 from a low of just 75,000 this time last year.
But Earley warns the fundamentals of the market remain fairly fragile and will prevent strong price rises in 2006.
She states: “First, while the UK economy seems to have made a turn and be on a path of recovery, 2006 is still likely to see below-trend growth. Further rises in unemployment are possible and most of the risks seem to be on the downside.
“Secondly, affordability remains stretched and it is unlikely that the market could absorb another strong rally of house price inflation.”
In addition, there are already indications consumers’ appetite for further unsecured debt may be diminishing and the amount of extra borrowing against property has slowed.
Growing uncertainty over pensions has made saving more important and, while this could generate renewed demand for housing as a form of pension saving in the longer term, Earley suggests consumers may focus on more traditional forms of saving and debt repayment in the shorter term, especially as the stock market recovers.IFAonline
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