House prices up 12.1%

House prices jumped 12.1 per cent in the year to June, the biggest annual increase since March 2005.

According to the Department for Communities and Local Government, house price growth doubled in June, with prices jumping by 1.6 per cent.

This compared with an increase of 0.7 per cent in May, to put the average cost of a home in the UK at £214,222.

The average first-time buyer is now paying £164,755 to get on to the property ladder, 12.4 per cent more than a year ago, while former owner occupiers are paying around £238,490, a rise of 11.9 per cent compared with June last year.

The stronger than expected figures contrast with other indexes which had shown the housing market was slowing down in response to higher interest rates.

The annual rate of house price inflation increased in all regions of the UK in June expect Wales, where it slowed to 7.6 per cent from 8.5 per cent, and Scotland, where it remained static at 15.6 per cent.

Northern Ireland continued to have the strongest rate of house price growth at a new record of 55.9 per cent, while in London prices rose by 17.5 per cent in the 12 months to the end of June, the highest figure since January 2003.

The South East also saw double digit gains of 10.7 per cent, while growth was running at 9.6 per cent in both the East and Yorkshire and the Humber.

Even the West Midlands, where annual growth is currently slowest, saw year-on-year increases of 7 per cent.

Howard Archer, chief UK and European economist at Global Insight, said: "There is no denying that the DCLG house price data are markedly stronger than expected, and suggest that the housing market is proving resilient to higher interest rates."

But he added that the DCLG figures tended to lag behind other indexes, and recent figures for July from Nationwide, Rightmove, Hometrack and the Royal Institute of Chartered Surveyors had all suggested the market was slowing.

He said: "The overall impression than we get from the very latest data and survey evidence is that the housing market has peaked and is gradually and erratically coming off the boil as demand is increasingly pressurised by the rising affordability pressures stemming from higher interest rates, modest real disposable income growth and elevated house prices.

"Furthermore, there is still a very real possibility that that interest rates will rise by a further 25 basis points to 6.0 per cent in the autumn, which would heighten affordability pressures, although much is likely to depend on events in global financial markets over the coming weeks."

But he said there was a danger that tighter credit and sustained financial market turmoil could "hurt" the mortgage and housing markets, increasing the risk of a "sharp slowdown".

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