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Warning as UK property prices rise 8.2%

 © The Herald
Originally published: 08.09.2006

THE property market is continuing to show signs of strength, with Halifax Bank of Scotland (HBoS) saying yesterday that average prices rose by 8.2per cent over the past year.

The average price of a home in the UK in August was £179,043, but Martin Ellis, the bank's chief economist, said several factors suggested a cooler period ahead.

He pointed to large increases in utility bills and higher mortgage rates after the Bank of England's decision to raise its base rate in August.

Mr Ellis said: "These developments, combined with the historically high level of house prices relative to average earnings, are expected to constrain housing demand and moderate house price inflation over the remainder of the year."

HBoS reported market activity levels were firm, with the number of loans approved for house purchase in the three months to July up 24per cent on the same period a year earlier.

Howard Archer, chief UK and European economist at Global Insight, said affordability pressures were likely to outweigh the support to the housing market coming from high employment and a relatively healthy economy.

He added: "House prices may well see further strength in the near term, given current robust mortgage activity, survey evidence showing still healthy buyer interest and a reported shortage of properties in some areas. This is particularly true of London and the south-east.

"Nevertheless, we continue to believe that house prices will increasingly be reined in by affordability constraints and will settle down into an extended period of relatively modest rises."