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Last Updated: Wednesday, 3 March, 2004, 10:02 GMT
Rates fail to cool house prices
Semi-detached houses
The housing market shows no signs of easing off
UK house prices are still rising strongly, despite interest rates having been pushed up twice by the Bank of England, the Halifax says.

The UK's biggest mortgage lender said the year-on-year rise in house prices stood at 17.8%, up from 16% in January and 15.4% in December.

The current average price of a home rose 1.6% during February, to 148,089.

However, the new monthly rise is down sharply from January's figure, which was revised upwards to 2.3%.

Halifax's monthly rise at 1.6% is only half that reported last week by the Nationwide Building Society, which claimed that house prices rose by 3.1% in February.

But there are some differences of timing of data collection between the two lenders and economists say the Christmas period could have distorted the figures.

Rose-tinted market

Another recent housing market survey cast serious doubt on the validity of recent house price gains and warned that the market may be teetering on the brink of a collapse.

City firm Durlacher predicted that house prices could tumble by 30%, claiming that the property market peaked in 2001.

Since then, Durlacher said, a combination of speculative buy-to-let investment and lenders stretching income multiples have combined to drive the market even higher.

For now, the Bank of England is concerned about the impact of the housing market on inflation and consumer debt, and wants to engineer a slowdown in the growth in the housing market for fear that a credit crunch would lead to a crash.

Rate threat

The Halifax and Nationwide figures will add pressure on the Bank's Monetary Policy Committee (MPC) to consider another quarter point rise in UK base rates at its latest two-day meeting which starts on Wednesday.

According to the Halifax, the house market is being propped up by a strong labour market, low rates and a shortage of new homes being built.

"The ongoing strength of the housing market is underpinned by the favourable combination of a strong labour market, historically low interest rates and low mortgage payments in relation to earnings," said Shane O'Riordain, general manager of group economics at Halifax.

The rapid growth in home prices has also led to a "significant increase" in the number of properties which may be subject to inheritance tax.

The amount of homes valued at more than the current threshold of 255,000 is thought to have risen by 390,000 to 1.94 million.

And more than two-thirds of this rise has taken place in areas outside London and the South East.




WATCH AND LISTEN
The BBC's John Moylan
"The biggest rises continue to be in the north of the UK"



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