Property price rises start to slow

Property prices in the UK rose at their slowest rate of the year in July, according to the UK's largest mortgage lender the Halifax.

The average price rose by 0.7% in the month - pushing the price of the average property to £92,718, up 9.6% from the average price a year earlier.

We have to bear in mind why interest rates have been cut - because of worsening economic prospects, which will constrain housing demand

Martin Ellis
Halifax

Despite the slight slowdown, the rate of price rise in July was still an annualised rate of 8.4% and added to concern from rival Nationwide that values are increasing at an "unsustainable" rate.

The figures come the day after the Bank of England shocked the City by cutting interest rates from 5.25% to 5% - a move which in turn led to mortgages being cut to their lowest levels for 40 years.

Economists have expressed concern that this latest rate cut might fan the flames of property prices by making mortgages cheaper.

Market to slow

But Martin Ellis, Halifax's group economist, warned that price rises would continue to slow as weaker economic growth curbed housing demand over the coming months.

He said recent rises had been powered by "the continuing fall in unemployment and the record high level of unfilled job vacancies".

He added that he thought the 0.25% cut in interest rates would have little impact on the housing market.

"We have to bear in mind why interest rates have been cut - because of worsening economic prospects, which will constrain housing demand."

Halifax predicts that property prices will increase by 7% during 2001 and does not anticipate a fall in prices.

In most areas of the UK prices were rising at between 4% to 6%, with higher rises of 17% and 11% in London and the South East.

Halifax's July survey takes a more cautious view of house price inflation than one from the Nationwide earlier this week.

The Nationwide warned that the 11% rate of price rise could not continue.

No fall in prices

But while Halifax thought the rate of house price increase would slow, it did not anticipate a fall in prices.

In most areas of the country prices were increasing at an annual rate of 4% to 6%, and it was only in London and the South East where bigger annual increases, of about 17% and 11% respectively were being seen, Mr Ellis said.

Halifax predicts that UK house prices will increase by 7% during 2001.

Hefty price rises have lined the pockets of Britain's property companies.

On Friday, housebuilder Alfred McAlpine reported a 23% rise in first-half profits, results that it attributed mainly to the demand for new houses.