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Last Updated: Wednesday, 28 March 2007, 08:00 GMT 09:00 UK
Rate rises 'cooling house prices'
Three rate rises since last August have cooled demand
UK house price inflation slowed in March indicating that recent interest rate rises are having an effect, the Nationwide has said.

The building society said prices rose by 0.4% in March, putting the average property cost at 177,083.

Annual house price inflation fell to 9.3% in March from 10.2% last month.

Nationwide said mortgage approvals and buyer enquiries at estate agents had fallen since the start of the year and it expected these trends to continue.

The Bank of England has put up the cost of borrowing three times since last summer, and until recently there had been few signs that this was having any effect on the housing market.

But Fionnuala Earley, the Nationwide's chief economist, said this was now changing.

"While the annual rate of house price inflation has yo-yoed over the last few months, the underlying trend is clearly softening as interest rate rises take effect," she said.

"Prices have risen by an average of 0.4% per month this year, compared with 1.1% in the last three months of 2006."


Graph of Halifax and Nationwide house price indices

The Nationwide said it was sticking with its prediction that prices would continue to rise this year, but not as fast as in 2005.

"The UK housing market will remain fairly firm in the short term, partly because of the momentum built up in the market that will take a few months to work through, but also because of supply constraints," said Ms Earley.

"Not only are insufficient numbers of homeowners putting their properties on the market, but levels of house building continue to undershoot the levels of demand," she said.

House prices have gone up by an average of 15,000 over the past year, which is the equivalent of 1,250 a month or 41 every day.

Oliver Gilmartin, economist at the Royal Institution of Chartered Surveyors, said despite a slowdown in prices, it would still get harder for people to buy their first home.

"Whilst a slowing in the pace of growth will continue into 2007, house prices are still moving upwards reducing both affordability and accessibility for those anxious to enter the market," he said.

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