House price inflation 'higher than expected

Britain's biggest mortgage lender, the Halifax, said today that house prices had grown at a faster pace than it had anticipated in the first half of this year, despite a slowdown in inflation to just 0.6% in June.

House prices in the north of the country boosted inflation last month, with the biggest price rises seen in the north at 8% and in Yorkshire and Humber at 6.8%. Meanwhile, prices in London dropped by 0.9% led by decreases in some of the most expensive areas such as Hammersmith and Fulham. Elsewhere in the south-east, prices fell by an average 1%.

Despite the slowdown in growth, Halifax said that inflation for the first six months of the year had reached 7.1%, double the long-term average rate of increase and higher than it had initially expected. This was largely boosted by an unexpectedly sharp rise in prices of 1.5% in May following just 0.4% in April.

The mortgage lender said it would be adjusting its annual forecast upwards from 9% to 10% but said that house price growth could well be higher than this by the end of 2003.

"The northern regions are likely to continue to lead the way over the coming six months as house prices remain low relative to average earnings in these regions compared to the south, suggesting that there is scope for continuing buoyant conditions in the north," said chief economist Martin Ellis.

He said that the gap between average UK house prices and London prices, while remaining "huge", had started to narrow. It fell from a gap of ?95,000 in the first quarter of 2003 to ?89,00 in the second quarter.

"Overall, housing demand in the south of England, as elsewhere in the UK, remains underpinned by low levels of unemployment and low interest rates," said Mr Ellis. "There also remains a persistent shortage of homes in the south, a phenomenon that will continue to support prices in London and the south-east over the medium and longer terms."