House prices taking off again

FRESH evidence that the housing market has sprung back to life emerged today from Britain's biggest mortgage lender.

Halifax said the average price of a home rose by 1.5% to £135,958 last month following a 1.3% increase in August.

However, even bigger price rises this time last year meant the year-on-year rate of increase slipped from 19.1% to 18.6% - the slowest pace of growth for a year.

In London, house prices increased by 2.1% in the three months to September, more than reversing the 0.7% fall in the previous three months.

But annual figures still reflect a slowing of house price inflation in the capital. At 8.6%, this is the lowest figure since the first quarter of 2001 and leaves London at the bottom of the regional league table for price growth. In contrast, prices in the North are shooting up by an annual 38%.

Halifax chief economist Martin Ellis said sales activity had picked up in recent months, adding: 'A combination of low interest rates and high employment continues to support demand.'

He said that, after the surge in prices in the North, a more even pattern of house price growth across the country was expected next year.

Today's figures chime with those from Nationwide building society this week. These showed house prices rising by 1% last month, with the year-on-year rate of increase slowing to 15.5%.

Experts say the underlying picture is of a market gently coming off the boil rather than one heading for a disastrous collapse. But some experts have warned that the longer prices continue to gallop ahead, the bigger the risk of a crash.

The Bank of England and consumer groups have repeatedly warned homeowners against overstretching themselves by taking on mortgages they may not be able to pay when interest rates start to rise.

Today's figures will reinforce expectations that the Bank will leave the cost of borrowing at a 48-year low of 3.5% when its monetary policy committee meets next week.

Nonetheless the City expects interest rates to rise by Christmas, amid mounting signs of economic recovery.