House prices bounce back

HOUSE prices in the UK rose 0.4% in January, bouncing back from a 0.2% fall in December, according to Nationwide building society. But the annual rate of increase slipped from 12.7% to 12.6%.

Britain's biggest building society said annual house price inflation is now at its lowest level since January 2002. The figures, which are seasonally adjusted, put the average house price at £151,757.

'We continue to expect small price rises in some months and small falls in others, with prices rising by 2% during 2005 as a whole,' said Alex Bannister, Nationwide's group economist.

He added that with the market relatively flat for six months, 'sentiment may be about to turn more positive'. He said confidence was knocked in 2004 by fears that interest rates might hit 5.75% this year. Nationwide argues that those concerns have eased. It expects interest rates to peak at 5% in the spring or summer.

Bannister added that scuh a rise would keep mortgages afforable. Repayments as a proportion of take-home pay would rise to 31% with a quarter-point rise. This compares to 39% at the peak of the early Nineties property boom.

He also questioned the Government's ability to cool the property boom by encouraging more building. A report recommended the number of homes needed each year was 195,000. Nationwide said the average annual addition to housing stock between 2000 and 2003 was 149,000 and 190,000 last year. It expects the same this year, falling short of the target.

Nationwide's upbeat assessment of the market comes after a gloomy report from property research company Hometrack yesterday. It suggested values have been falling for seven months, with prices 3% lower than they were in June. The number of potential buyers on estate agents books plunged 12% in January, a time when househunters traditionally emerge.