Fastest house-price rise in three years fuels bubble fears

House prices rose at their fastest rate for more than three years in the three months to September, the Halifax said today, adding to fears the Government’s Help To Buy scheme could create a price bubble.

Halifax said prices rose nationally by 6.2% in the period against a year earlier. Month-on-month prices grew by 0.3% to their highest for five years.

Martin Ellis, Halifax housing economist said: “Housing demand has risen more quickly than supply in recent months, putting upward pressure on prices. Demand has increased against a background of low interest rates and higher consumer confidence underpinned by signs that the economy has begun a sustainable recovery. Official schemes, such as Funding For Lending and Help To Buy, also appear to have boosted housing demand.”

The Bank of England has repeatedly said that it will intervene if its sees real signs of a housing bubble starting, and has been given greater powers by the Treasury to do so.

Governor Mark Carney said last night that the Bank now had a “range of tools” it could use to ensure that the housing market “isn’t in a boom and then bust phase”.

Halifax suggested there was evidence the market was starting to unlock. Ellis said: “There are signs that supply is beginning to respond to the pick-up in demand, which if continued should help to constrain the upward pressure on prices.

“The recent strengthening in house prices is increasing the amount of equity that many homeowners have in their home, enabling more to put their property on the market for sale. Levels of housebuilding are also increasing, albeit from a very low base.”

Nationwide said last week that house prices rose at an annual rate of 5% in September.

Howard Archer, chief economist at Global Insight, said: “The relatively modest month-on-month rise in house prices reported by the Halifax in September may slightly ease concerns over an emerging house price bubble. Furthermore, house prices overall are still 14.5% below the peak level seen in August 2010.”

Archer also pointed out that  limited supply continued to push  up house prices more than the national average in London and  the South-East.