House price growth 'bounces back'

House price inflation was stronger than expected in June

UK house price inflation "bounced back" in June with prices rising by 1.1%, according to the latest survey from the Nationwide building society.

The stronger-than-expected increase lifted the annual rate of growth to 11.1% from 10.3% in May.

Nationwide said prices were rising more than twice as fast as last year, with the average house price now £184,070.

However, it said that it thought the rate of growth would slow in the second half of the year.

As a result, Nationwide said it was sticking by its forecast of 5-8% price growth for 2007.

'Softening'

Estate agents are continuing to show a fall in the number of new buyer enquiries and house builders are also registering falls in the numbers of site visitor Fionnuala Earley, Nationwide

The strength of the UK housing market was underlined by the fact that prices in the past three months rose 2.2% compared with the previous three month period, up from May's comparable figure of 1.9%.

Nationwide's survey findings run contrary to recent trends which have seen house price inflation beginning to plateau.

But Fionnuala Earley, Nationwide chief economist, said that despite June's uptick in inflation, the housing market was showing signs of "softening".

"Estate agents are continuing to show a fall in the number of new buyer enquiries and house builders are also registering falls in the numbers of site visitors," Ms Earley said.

She says the key reason is the steady rise in UK interest rates, which have been raised four times since last August, going up from 4.5% to 5.5%.

The Bank of England's Monetary Policy Committee will meet next week to decide whether to raise UK interest rates again.

Many experts are predicting a further rate rise in July or August, which may further squeeze homeowners' finances.

Ms Earley said the continued vigour shown by the housing market would "add to the rate rise camp's argument."