Halifax cautious on property despite December rise

After a series of indices showing falls in house prices and mortgage lending, and a selection of fairly bleak predictions for 2005, Halifax offered a little hope to homeowners worried about a tumbling property market.

House prices crept up by 1.1% in December, following two consecutive reports of price falls in October and November. The average house in Britain now costs ?162,086.

Despite the increase, Halifax stuck with its prediction of a fall in prices of 2% in 2005.

Prices increased by 15.1% overall in 2004, but the second half of the year saw increases fall to just 2.8%. Last year's rise was the smallest since 2001, when property prices rose by 11.7% across the year. In 2002, the market soared by 26.4%, but growth slipped back down to 15.4% in 2003.

In spite of December's increase, Halifax remained relatively downbeat about the prospects for the market in the coming year. Martin Ellis, chief economist at Halifax, said: "Housing market fundamentals remain sound - a strong labour market, historically low interest rates and a shortage of housing supply - which should curb the extent of the downturn in the housing market and result in only a slight fall in house prices this year.

"We expect a 2% decline in prices nationally this year followed by a market characterised by modest price increases and a steady improvement in transactions beyond 2005."

Creaks and groans in the property market have led many analysts to predict a fall in interest rates in 2005. Mr Ellis said: "The continuing signs of a genuine slowdown in the housing market are likely to be a key factor contributing to the removal of pressures on the Bank of England to raise interest rates again.

"Accordingly, we believe that base rates have peaked at their current rate of 4.75% and that rates will end the year half a percentage point lower at 4.25%."

Howard Archer, chief economist at the investment firm Global Insight, said the news of a rise in December had come as a "shock" and was in contrast to indices published by Nationwide, which reported a 0.2% fall in December, and property websites Rightmove and Hometrack.

"Nevertheless, the Halifax report provides some reassurance that house prices are slowing steadily overall rather than sharply," he said.

Mr Archer added: "A whole range of factors clearly point to more house price weakness in the early months of 2005 at least.

"These include very weak mortgage lending and approvals, waning buyer interest, more houses on the market, longer time needed to sell a house, and agreed selling prices falling as a percentage of the asking price."

He said that Global Insight forecasts house prices to be flat year on the year during the second half of 2005 and to rise by around 2% over the year as a whole, but warned that a crash could not be ruled out.