Rate hike 'premature' as house price rises cool

New figures out today suggest that Mervyn King, the Governor of the Bank of England, may have acted prematurely in putting interest rates up last week.

The Land Registry, whose figures are regarded as the most reliable as they are based on actual transactions, said house prices were 10.62 per cent higher during the three months to the end of September than the same period last year. This compares with 13 per cent during the April-June quarter and 19.7 per cent in the first three months of the year, indicating that house price inflation may be cooling rapidly.

The Bank's Monetary Policy Committee raised its base rate by 0.25 percentage points to 3.75 per cent last Thursday, saying "neither household spending nor the housing market have slowed by as much as the committee expected".

But that was before the Land Registry report, which pointed out that the number of house sales fell more than 11 per cent to 290,637 between September 2002 and the same quarter this year. Most significantly, the Greater London area has led the way down. Prices here rose just 5.4 per cent during the period, and the number of sales fell nearly 18 per cent to just 36,353. But the number of London properties sold for more than £1m nearly doubled from 338 to 766, suggesting the top end of the market is beginning to recover.

Prices rose in all areas. The North was strongest, up 24.36 per cent, followed by Wales at 20.77 per cent and the East Midlands at 20.74 per cent. Yorkshire and Humberside was up 19.97 per cent over the year, and North West prices jumped by 16.85 per cent. Growth in the South-east was a sluggish 10.41 per cent. The South-west and East Anglia both reported increases of just under 15 per cent.

Despite the low increase London remains the most expensive region to buy a home, with prices averaging £262,044 compared with a national average of £161,665. The most expensive place in Britain is still London's Royal Borough of Kensington and Chelsea, at £687,364. Property is cheapest in the two regions which saw the strongest price growth, £99,718 in the North and £105,382 in Wales.