Halifax boosts forecast for house price growth

The Halifax, Britain's biggest mortgage lender, sharply raised its prediction for house price growth yesterday after reporting a small rise in prices last month.

The lender now believes house prices will end 2006 up 5%, having previously forecast growth of 3%. Its announcement came just hours before the Bank of England's monetary policy committee raised interest rates by a quarter point to 4.75%.

The Halifax said prices rose 0.2% in July following two months of falls, adding £367 to the value of a typical British property. The price of an average house now stands at £177,020, compared with £163,445 a year ago. However, the annual rate of price growth slipped slightly to 8.8%. A mixed pattern of price rises and falls was the sign of a more stable housing market, said Martin Ellis, the high street bank's chief economist. However, there were indications that the upward trends in prices and housing market activity were beginning to ease.Property values have increased by only 0.9% in the past four months, compared with 3.3% in the preceding four months. The number of loans approved for house purchases slipped 2% in the second quarter of this year, according to the latest Bank of England data.

Fears of further interest rate rises, soaring utility bills and more costly fixed-rate mortgage deals were also likely to rein in demand, said Mr Ellis. British Gas's announcement last week that it would raise gas bills by 12.4% next month underlined the pressure on household finances. But a strengthening economy, high levels of employment and low interest rates would continue to keep the market healthy.

"Sound fundamentals will continue to support a healthy housing market over the remainder of 2006. None the less, we expect the annual rate of house price inflation to ease," said Mr Ellis.