House prices still on the rise

HOMEOWNERS enjoyed another increase in property values last month as the market continued to defy slump predictions.

Britain's biggest mortgage lender, Halifax, said the average price of a home across Britain rose by 1% to £139,405. However, the year-on-year increase rate slipped from 16.7% to 14.1%.

Last month's rise was the slowest rate for five months in after the Bank of England raised interest rates for the first time in nearly four years.

It was slower than the revised 1.4% monthly gain seen in October but still indicates strong activity in the housing market. The rise was the smallest since June when prices rose by only 0.6% just before the BoE cut interest rates to a 48-year low of 3.5%.

'The gradual easing in house price growth reflects a market returning to average house price rises after two years of exceptional increases,' Halifax chief economist Martin Ellis said.

The BoE reversed its quarter-point July rate cut partly because it was worried that house prices were rising too fast, reckoning that the longer the boom went on, the greater the risk of a sharp correction in the future.

Halifax said the latest price increases were still significantly above the long-term average of 8% year-on-year rises and suggested that the recent rate rise would do little to slow the housing market significantly.

It said the average homebuyer is currently paying 13.6% of their post tax income to support mortgage payments compared with an average of 21% over the last 20 years.

'For mortgage payments to equal the long-term average, bank base rates would have to rise to 6.25%, and for them to reach the peak of 36%, bank base rates would need to rise to 10%,' it said.