'Modest' house price rise forecast

House price inflation has slowed significantly

Weakening economic growth will mean house prices rising by a modest 4% next year, the Halifax has predicted.

The north-south divide - which saw property prices in the north lagging behind soaring prices in the south - should narrow slightly by the end of 2001, according to the bank.

Relatively high house prices compared with earnings will hold back price growth in the south, while signs of a recovery in manufacturing could bode well for house prices in other parts of the country.

Interest rates, which have been held at 6% by the Bank of England since February, are now expected to have peaked and should start to fall.

They should be reduced to 5.75% by the end of 2001 with further cuts in 2002.

Healthy market

Martin Ellis, Halifax group economist, said: "The annual rate of house price inflation has slowed significantly during 2000 from a peak of 16% in January to 7.1% in November.

"Despite this slowdown, the housing market remains healthy and demand should continue to be underpinned by a sound economic and affordability backdrop over the coming year.

"Nevertheless, slowing economic growth will constrain house price growth and housing transactions levels.

"Accordingly, we predict a rise in house prices of 4% in 2001, marking a period of modest but steady growth."

Steady growth

In December, the Halifax said the average price of a home had risen to £86,752.

In a separate study, estate agent Team said Britain did not see a runaway boom in 2000.

The average house rose in price by 9.5% between January and December, its network found.

Apart from "hotspots" in London and the West Midlands, the prices of homes under offer in most of the group's 520 offices showed steady growth.