House prices 'picking up'

BRITAIN'S housing market got off to a flying start in 2006, with property prices posting their biggest jump for 18 months in January In the latest sign the market is picking up after slowing sharply during 2005, Nationwide Building Society today said the average price of a home rose by 1.4% to £158,478 this month.

It is the biggest one-month increase since July 2004 - the height of the boom - and pushes the year-on-year rate of growth up from 3% to 4.4%, the fastest since last May. The housing market limped through 2005 as spiraling household debt and a series of interest rate rises from the Bank of England triggered a dramatic slump in demand and price falls in some areas. But last summer's quarter-point reduction in borrowing costs appears to have kick-started sales. In London, bumper City bonuses have triggered a mini property boom in some districts.

Nationwide group economist Fionnuala Earley said: 'We think that at least part of the pick-up in the market since October reflects a release of some pent-up demand following the cut in interest rates in August and the increased confidence on the part of buyers and sellers as they became more comfortable that the market was heading for a soft landing.' The continued upswing in mortgage approvals suggests the market will strengthen further over the next few months, she added. The British Bankers' Association said last week that approvals - loans agreed, but not yet made - were 5% higher in December than a year ago.

Earley warned that the housing market's current strength is unlikely to be maintained, however. She said sluggish economic growth and a lack of affordability, both for first-time buyers and existing homeowners looking to trade-up, will keep a lid on prices. Indeed, she has pencilled in price rises of 3% at best this year.

She said: 'Further rises in unemployment are possible and most of the risks [to the economy] seem to be on the downside. In addition, growing uncertainty over pensions has made saving more important. 'While this could generate renewed demand for housing as a form of pension saving in the longer term, consumers may focus on more traditional forms of savings and debt repayment in the short term, especially as the stock market recovers.'