Assetz® News - House price inflation continues

House price inflation continues

27th February 2006 |

Momentum is again building in the UK property market, with news that house prices have increased for three months in succession.

More encouragingly still, the report has come from Hometrack, whose market surveys are traditionally among the least optimistic available. After a cut in interest rates in August, the market has been strengthening almost weekly, but it is in the last three months that solid and unwavering growth has really kicked into gear.

In February, Hometrack found that property prices increased by as much as 0.4 per cent, which represents the largest monthly increase since the heady days of June 2004. This follows an increase of 0.1 per cent in January, taking the average value of a property up to £161,700.

For those looking to invest in property this year, it is extremely good news and it has surprised the pundits who predicted nothing but doom and gloom in the latter months of 2005.

Some were saying that young couples were ready to give up on the property market, while the more dramatic pessimists thought there may even be a property crash.

When the Bank of England decided this month to freeze interest rates, however, it was agreed that the decision had been made largely because of the extraordinary strength of the property market, with members of the Monetary Policy Committee concerned that another boom lies around the corner.

Dispelling the popular conception that first-time buyers have deserted the market, Hometrack's director of research Richard Donnell said: "A key driver of higher house price inflation over February has been a surge in the number of new buyers coming into the market."

He added that demand is comfortably outweighing supply at the moment, with London an extreme example of this trend.

The capital saw a 35 per cent rise in the number of new buyers, but only a ten per cent rise in the number of available properties and this is inevitably pushing prices up across the city.

Exercising caution, Mr Donnell has indicated that he will now be looking out for evidence that the recovery is permanent.

"The key issue is whether the momentum of the first few months of 2006 can be maintained, especially after the strong end to 2005," he proposed.

"Much hinges on the outlook for interest rates, the strength of the economy and the direction of consumer confidence. A period of improved market activity was always inevitable after the lengthy slowdown between mid 2004 and mid 2005 but the reality is that housing remains fully valued across much of the country," he added.

Accordingly, Mr Donnell is confident that values will continue to rise throughout the year, although he expects the pace of this growth to be less remarkable in the winter months.

Although many investors are now looking abroad to the likes of Spain and France for property projects, the continued growth in the UK industry acts as a reminder that significant gains can be made at home.