House price rise continues

UK house prices grew 1.2% in October to stand 16.7% higher than they were a year ago, according to the Halifax.

The increase pushed the average house price up nearly £2,000 to £137,780.

The Halifax said the market was not slowing as quickly as it had expected, but annual price rises were well down on the 24.5% growth rate a year ago.

The Bank of England is meeting to discuss interest rates, but the UK's biggest mortgage lender said any rise would have only a minor impact.

Analysts widely expect the Bank's Monetary Policy Committee to raise rates by a quarter of a percentage point to 3.75% in a bid to counter the debt boom sparked by a surge in UK borrowing.

Affordable

Such a rise would mean an extra £4-a-week on the typical £80,000 mortgage, the Halifax said.

Martin Ellis, chief economist at the Halifax, said: "This is a figure which can easily be absorbed by the vast majority of UK households."

Mr Ellis added that another reason that a rates rise would have little effect is that half of all new borrowers were electing to take a fixed rate mortgage.

Halifax also said that although personal debt levels were high, historically low rates meant borrowing was still "affordable", with the average borrower spending 13.6% of their earnings on paying the interest on their mortgage.

Ed Stansfield, property economist at Capital Economics added: "Higher interest rates... are likely to impact more on sentiment than on affordability in the long run."

The Halifax also warned that house price growth was unlikely to slow due to a "chronic" shortage of new homes.

Last year, just 170,000 new homes were built - slightly more than in 2001 which was the lowest total of new homes built in any year since 1947.

Rejuvenated market

UK house prices have risen dramatically in recent years driven by a combination of falling interest rates, rising incomes and higher employment.

The market had been showing signs of slowing down earlier this year but the Bank of England's rate cut in July - which took the cost of borrowing to a 48-year low of 3.5% - seems to have breathed new life into it recently.

Last week, the Nationwide Building Society released its own house price index showing prices jumped 2% last month, the strongest for 14 months, growing 16.% up year-on-year.

However, Mr Stansfield at Capital Economics added that he was convinced the recent jump was a result of "pent up demand", as people put off buying homes early in 2003 due to uncertainty about the Middle East and outlook for the economy.

He added: "If rising rates inject some realism into the market, then we could be well on the way to a much weaker housing market in 2004."