Average UK house prices are increasing again – but for how long? Paula John reports

UK house prices surged in February this year, growing by 1.4% last month alone. According to the monthly house price index from Halifax, the UK’s largest mortgage lender, the increase more than offset a slight fall in average house prices in January.

Compared to recent years, which have seen steady growth in average house prices, a varied pattern has characterised the sector since summer 2005, indicating a slower housing market. Annual house price inflation now stands at 5.5%.

Halifax stands by its official estimate that average UK house prices will grow by a modest 3% over the course of 2006 as a whole, broadly in line with general inflation. But February’s strong figure could indicate strong growth over the next few months, followed by a reduction in the rate of monthly house price growth.

 “The combination of improving economic growth, low interest rates and high employment will continue to underpin a healthy level of housing demand and prevent a significant, and sustained, acceleration in house price inflation in 2006,” said Martin Ellis, chief economist at Halifax.

 “The continuing high level of house prices in relation to earnings will curb the ability of many potential first-time buyers to enter the market.”

Halifax also pointed out that increased household bills, as well as house prices themselves, will keep first-time buyers out of the market and restrain demand in general. It calculates that the average household spend on council tax and utility bills will outstrip mortgage costs for the first time this year.