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Shock house price rises through August

7th September 2005 | back to article listings BACK    print this article PRINT

House prices have surprised analysts – and most others who pay any attention to the market – with a sudden 1.6 per cent rise through August, reported in the widely respected Halifax House Price Index. Most commentators have attributed the rise to Bank of England's decision to cut the base rate of interest at the beginning of August.

Halifax, the UK's biggest mortgage lender, said that the house price increase was the biggest monthly gain since September of 2004, and compared it to the miserly 0.4 per cent increase in June.

Advisors have counselled caution, however, saying that the move is unlikely to be the first sign of any substantial upward trend. "We do not believe that it is a sign that house prices are about to start moving back up strongly," Howard Archer of Global Insight told This is Money.

"The Nationwide, Hometrack and Rightmove surveys have all revealed relatively more subdued house price data for August than the Halifax. It is clearly still very much a buyers' market," he added.

The headline figure was by no means the only positive news however, with market activity improving and loan approvals 26 per cent higher than November 2004, on a seasonally adjusted basis.

Completed sales rose in July following four months of stagnation and there was an increase in new buyer enquiries for the second consecutive month, according to RICS.

"This pick-up in monthly house price inflation is consistent with the continuing upward trend in market activity in recent months and the previous pattern of house price movements when the Bank of England begins to reduce interest rates," said Martin Ellis, chief economist at Halifax.

"The ongoing growth of the UK economy, robust earnings growth and historically high levels of employment all underpin the housing market."

The outlook also appeared positive in the property investment buy-to-let sector, with Royal Institution of Chartered Surveyors (RICS) figures showing that annual rent rises are now outstripping house price inflation for the first time in nine years, and new buy-to-let investors are looking to build portfolios.

"The return of buy-to-let investors to the market is a result of expectations that interest rates have peaked," suggested Jeremy Leaf of RICS.

"They may also have been encouraged by the fact that the housing market, though subdued, has not collapsed, despite widespread fears it would do so."

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