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Last Updated: Thursday, 31 August 2006, 08:22 GMT 09:22 UK
'Firm' growth in UK house prices
Browsing at an estate agent
The Nationwide says the Bank of England is in "hawkish mode"
Annual house price growth increased in August, with the market remaining "firm", the Nationwide has said.

The building society's housing survey found that prices rose by 0.8% during the month, the same as in July, lifting the annual rate of growth to 6.6%.

This was the fastest yearly growth rate since April 2005, and the average UK property now costs 167,721.

The three-monthly trend showed prices rose 1.4% in the three months to August compared with the previous quarter.

Strong demand

Seasonally adjusted house prices were 157, 310 one year ago in August 2005.

The report is the Nationwide's first since the Bank of England unexpectedly raised UK interest rates to 4.75% from 4.5% in early August.

House price graph

"While the MPC is now clearly in hawkish mode, uncertainties about oil prices and the amount of slack in the economy mean that the inflation outlook is less definite and fewer rate rises are expected," said Fionnuala Earley, Nationwide's group economist.

"Even though we expect rates to increase to 5% - 25 basis points above the peak of the last cycle - current economic conditions, especially in the labour market, are still supportive."

Continuing demand for buy-to-let properties would probably also underpin the market, she said.

Despite potential interest rate rises, Nationwide does not expect the market to slow as sharply as during the period November 2003 and August 2004, when five rises led to a rapid fall in house price inflation.

On Wednesday, the Bank of England said the number of new mortgages approved for house buying but not yet lent rose in July to 120,000 - the highest level since the start of 2006.

The figure suggests that activity in the property market could remain buoyant for the rest of 2006.

Seasonally adjusted house prices were 157, 310 one year ago in August 2005.

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