UK house prices rise 1% in March

House prices rose by 1.0% in March, the second smallest monthly increase since August 2006, according to the latest Halifax House Price Index.

The annual rate of house price growth has risen to 11.1% for purely arithmetic reasons, reflecting the strength of the housing market in early 2006. House price inflation should settle in coming months, given that recent conditions have been more subdued.

House prices increased in all regions during 2007 Q1. The biggest price rises were in Scotland (7.5%), the South West (5.4%) and Wales (4.9%). The smallest increases were in the East Midlands (0.2%) and Yorkshire and the Humber (0.6%).

The average price in Northern Ireland broke through the £200,000 barrier for the first time in 2007 Q1 (£206,495). Northern Ireland is now one of the most expensive parts of the UK with only London, the South East and South West having higher average house prices. Two years ago, Scotland was the only part of the UK with lower average house prices than Northern Ireland.

Over the past year, house prices have risen most rapidly in Northern Ireland (37.0%) and Scotland (22.4%). Greater London (14.9%) has recorded the biggest increase in prices in England. The smallest annual price rises have been in the North (5.6%) and the East Midlands (5.8%).

Sound economic fundamentals, combined with a shortage of both new house building and second hand properties for sale, continue to drive house prices up. New official household projections suggest that the shortfall in new homes being built is more acute than previously estimated. Nonetheless, the three quarter point interest rate rises since last summer, together with negative real earnings growth and above inflation council tax increases, are expected to curb housing demand, resulting in slower house price growth over the coming months.

Commenting, Tim Crawford, group economist, said: "House prices rose by 1.0% in March, the second smallest monthly increase in prices since last August. Prices continue to rise in a tight market but there are emerging signs that pressure on householders' finances, partly due to the rise in interest rates since last summer, are dampening housing demand with evidence of reduced market activity.

We expect the recent rises in interest rates, negative real earnings growth and above inflation council tax bill increases to lead to slower house price growth over the coming months. Sound economic fundamentals and an ongoing shortage of housing supply will, however, continue to support house prices."

House prices rise most rapidly in Scotland in 2007 Q1 ……

House prices increased in all regions during 2007 Q1. The biggest price rises were in Scotland (7.5%), South West (5.4%) and Wales (4.9%). The smallest increases were in the East Midlands (0.2%) and Yorkshire and the Humber (0.6%).

Average price in Northern Ireland rises above £200,000 ……

The average price in Northern Ireland broke through the £200,000 barrier for the first time in 2007 Q1 to £206,495. Northern Ireland is now one of the most expensive parts of the UK; only London, the South East and the South West have higher average house prices. Two years ago, Scotland was the only part of the UK with lower average house prices than Northern Ireland.

A strong local economy, high levels of immigration and high demand for properties from second homebuyers and buy-to-let investors in the Republic of Ireland have significantly boosted property prices in Northern Ireland over the past few years. As a result, the average house price in Northern Ireland has increased by 76% since 2005 Q1, far outstripping the UK average gain of 18%.

Average price in North West breaks £150,000 barrier ……

The average price in the North West rose above £150,000 for the first time in 2007 Q1 to £151,341. Scotland, Yorkshire & the Humber and the North are the only parts of the UK where average prices remain below £150,000.

London has recorded the biggest price rises in England over the past year…..

House prices have risen most rapidly in Northern Ireland (37.0%) and Scotland (22.4%) over the past year. Greater London (14.9%) has recorded the biggest increase in prices in England. The smallest price rises have been in the North (5.6%) and the East Midlands (5.8%).

North/south divide re-emerges in England……

A north/south divide in England has re-emerged over the past year with the most rapid price rises in London, the South West and the South East as house price inflation has accelerated in these regions. By contrast, house price inflation has eased across northern England with house price inflation in single digits in the three northern English regions over the past 12 months.

Further signs that housing market activity is easing……

There has been further evidence that housing market activity is slowing over the past month. The number of mortgage approvals to fund house purchase in the three months to February was 7% lower than in the preceding quarter, according to the Bank of England. The latest RICS monthly survey showed that new buyer enquiries continued to fall in February, whilst newly agreed sales dropped for the first time since June 2005.

Economic fundamentals are sound and supply shortages remain……

A robust economy and strong labour market continue to underpin healthy housing demand. Gross domestic product (GDP) is confirmed to have grown at above its long-term average pace in the final quarter of 2006 (source: ONS) with a 0.7% increase. The UK economy has now seen 58 consecutive quarters of economic growth, the longest unbroken stretch on record. The number of people in employment has increased by 221,000 over the past year with a further rise of 18,000 in the three months to January compared with the previous quarter.

Sound economic fundamentals, combined with a shortage of both new housebuilding and secondhand properties for sale, continue to drive house prices up. New official household projections suggest that the shortfall in new homes being built is more acute than previously estimated with the number of new households in England projected at 223,000 per year over the next twenty years, compared with earlier forecasts of 209,000 per year. The projected annual increase of 223,000 households compares with 160,000 homes built in England in 2006.

But pressures on householders' finances should cause house price inflation to moderate

The three quarter point interest rates rises since last summer, together with negative real earnings growth and above inflation council tax increases, are expected to curb housing demand, resulting in moderation in house price inflation over the coming months.