Nationwide flags up double-digit house price growth

House prices have continued to rise during the first month of 2010, confounding economists’ prediction that the market was due to fall back. The average UK house price is up by 1.2 per cent in January, the Nationwide Building Society said today, taking the annual rate of inflation to 8.6 per cent. The Land Registry, whose figures are one month behind, yesterday put the annual figure at 2.5 per cent.

Nationwide said that house prices had now risen for nine months running and that the rate of increases was speeding up: January’s 1.2 per cent rise was the highest figure in almost three years.

Martin Gahbauer, Nationwide’s chief economist, said: “Unless there is a fall in property values in February, annual house price inflation is likely to move into double-digit territory next month for the first time since May 2007.”

The strength of the housing market seems counter-intuitive given that the UK has only just emerged from recession and only with very weak growth. However, Mr Gahbauer said the number of homes coming onto the market remained very low by historical standards.

While there are some signs that supply is beginning to increase – HM Revenue & Customs says 104,000 homes were sold in December, the highest figure for two years – demand is also rising. Both the Council of Mortgage Lenders and the British Bankers Association have reported big increases in advances for home purchase in recent months.

Nevertheless, scepticism remains about the sustainability of the housing market recovery, with analysts warning that there are too few buyers to support prices if more people are encouraged to put their homes up for sale by the ongoing price increases.