House price inflation back into double figures

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Inflation in the housing market hit double figures for the first time in three years yesterday, according to the Nationwide Building Society, taking the average price of a house to within 10 per cent of all-time highs.

The Nationwide said the average house price rose by 1 per cent in April, compared to March, taking the annual increase to 10.5 per cent. The average cost of a house in the UK is now £167,802, which is 10 per cent below the peak recorded in October 2007, before the onset of the financial crisis.

The increase beat analysts' consensus monthly forecasts of a 0.7 per cent rise. Nationwide said, however, that the increase in prices should be treated with caution.

"The year-on-year rate in this month's figures received an additional boost from the fact that April 2009 was one of the weaker months last year," said Martin Gahbauer, Nationwide's chief economist. "Given the very strong performance of house prices from May 2009 onwards, it will take monthly increases in excess of 1 per cent for the annual rate of inflation to be maintained in double digits going forward."

Analysts at JP Morgan argued that the building society's three-month average was a truer indication of the real strength of the housing market. Nationwide's data showed that prices increased by 1.1 per cent in April, on a three-monthly measurement, the lowest level since June last year, and down from the 1.5 per cent hike seen in March.

There was also a warning yesterday that while the headline rate of inflation will cheer homeowners in short term, structural changes may mean that this month's figures represent a peak.

"There has recently been evidence of a slight shift in the supply-demand balance," said Mr Gahbauer. "While the recovery in new buyer inquiries at estate agent offices appears to have petered out, the last few months have seen an increase in the level of new instructions from sellers. This should lead to a gradual flattening out of the recent upward price momentum."

Spending cuts after the general election, especially in the public-sector job market, could also dampen prices, economists warned.

"Although we cannot be certain, we suspect that April's figure might mark the peak for house price inflation this year," said Ed Stansfield, chief property economist at Capital Economics.

"In order for the annual rate of house price inflation to rise further in May, prices would have to rise by at least a further 1.3 per cent, something they have done only once in the past eight months. Of course, once the election is out of the way, that mood of caution could lift. Yet the wider economic backdrop suggests otherwise."

The market is also likely to be subdued by the continued difficulties in the mortgage market, which is still stymied by lenders typically requiring a 25 per cent deposit from buyers.

The most recent data from HM Revenue & Customs showed that the number of completed sales in the UK jumped by 22 per cent in March from February.

Despite the increase, the figure was lowest for the month of March since HMRC began collecting data in 1978.