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Double figure house price growth in 2006

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House prices grew by a sizeable 1.2 per cent this month, defying experts' expectations to bring the property price inflation rate to 10.5 per cent for the year.

The average property in the UK now stands at £173,746, according to the new research from Nationwide, after the property market's growth was only marginally down from 1.4 per cent November, in spite of the Bank of England's decision to raise interest rates to five per cent, the highest for five years.

Commenting on the figures, Fionnuala Earley, Nationwide's group economist, said: "Both the housing market and weather forecasters were surprised by the warm climate this year.

"The temperate weather is likely to have played only a minor role, but the housing market clearly warmed up during the year. House prices increased three and a half times faster than last year and returned to double digits for the first time since February 2005."

No wonder then that this year has spelt good times for property investors, who, on average, saw their acquisitions grow in value by £45 a day, compared with just £12.50 a day last year.

Ms Earley added that there are "few signs that the rate of house price growth will moderate in the very short term" before predicting that property price inflation would continue at a marginally slower rate of between five and eight per cent over the next 12 months.

This is due to the triumvirate of key factors: a buoyant economy supported by high levels of employment, stable interest rates and a shortage in supply.

However, Howard Archer, chief UK and European economist at Global Insight, says that the market is likely to slow somewhat in the longer term.

"We suspect that growing affordability pressures resulting from higher interest rates, muted real earnings growth and elevated house prices will increasingly feed through over the coming months to squeeze buyers out of the market and curb house price rises," he explained.

"Growing affordability problems are expected to increasingly outweigh the support to the housing market coming from high employment and a relatively healthy economy (which we expect to lose a little momentum in 2007)."

Mr Archer added that, while we have not seen much impact from the August and November interest rate rises, when affordability pressures kick in at some point next year, first-time buyers in particular will begin to question whether it is worthwhile being strapped to a burdensome mortgage.

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