Rate cut causes house prices to rise
Wednesday, 07 Sep 2005 10:30
The rise in house prices is expected to be temporary
House prices rose by 1.6 per cent in August, the biggest monthly gain for 11 months, new figures show.
Halifax says the rise, which follows a 0.4 per cent gain in July, is a result of the Bank of England's interest rate cut; although it warns that the upturn in the market is only likely to be temporary.
The average house price in August was £165,967, up from £164,994 the previous month.
Long-term trends continue to paint a picture of a stuttering housing market, with prices increasing only 2.1 per cent in the first eight months of 2005, compared to a 12.5 per cent increase over the same period in 2004.
Annual house price growth was only 2.5 per cent in August 2005, compared to 21.3 per cent in August 2004.
Halifax chief economist Martin Ellis said August's house price rise was consistent with the pattern of previous house price movements when the Bank of England started to reduce interest rates.
An analysis of the initial rate cuts in previous periods of Bank of England rate reductions in 1998 and 2001 shows that house prices rose by significantly more in the month after the initial cut.
In October 1998 house prices rose by 1.1 per cent following a 0.4 per cent rise the previous month, and in February 2001 they rose by 1.6 per cent following a 0.3 per cent rise the previous month.
But in both cases the pick-up in house prices did not last.
Halifax is predicting housing market activity to remain broadly stable for the rest of 2005.
Mr Ellis said: "The ongoing growth of the UK economy, robust earnings growth and historically high levels of employment all underpin the housing market.
"The slowdown in economic growth in 2005 and the high level of house prices in relation to average earnings will, however, continue to curb housing demand and should prevent a renewed surge in house prices."
The latest figures from Halifax reveal a divergence in the two main house price indices, with Nationwide reporting a 0.2 per cent fall in prices in August, cancelling out July's rise of 0.2 per cent.