House prices 'rose 25% in 2002

Britain's largest mortgage lender, the Halifax, today confounded January's rash of gloomy reports of a housing market slowdown when it announced that house prices increased by a strong 1.5% over the last month.

According to the Halifax House Price Index, which celebrated its 20th anniversary this month, the average cost of a house in the UK rose from ?121,642 in December to ?123,451 in January. In annual terms, the average price of a UK property has risen by a jaw-dropping 24.9% from ?100,684 in January 2002.

Repeating what has become something of a mantra for housing market commentators, Halifax attributed the market's spectacular gains to a combination of the UK's historically low interest rates and low levels of unemployment. Martin Ellis, Halifax chief economist, said: "The factors that drove the market up last year continue to be very much in place. Mortgage rates are at their lowest level since the late 1950s. Unemployment, too, has continued to fall despite the relatively sluggish pace of overall economic activity." The steady decline in the number of people out of work in the last decade has underpinned the recovery in house prices, which began in 1996, and the drop in unemployment to less than one million people in early 2001 contributed to the recent steep surge in prices.

Affordability, measured by mortgage payments as a percentage of gross income (that is, what percentage of your income goes on your mortgage), is also excellent at present, further contributing to the healthy market. Due to a combination of low interest rates, cheap mortgages and comparatively high wages, the figure is significantly better than the historical average (14% compared with an average 21%). Mortgage rates averaged 5.7% throughout 2002, the lowest level since the late 1950s, boosting housing demand and making property more affordable.

Nevertheless, the group was careful to include the now mandatory note of caution in its statement when it said that it still expects the market to slow, predicting that prices will rise by just 9% during 2003 - a very conservative figure compared with the enormous gains of last year. According to Martin Ellis, "The rising number of first-time buyers who are finding it more and more difficult to get on to the housing ladder will increasingly curb demand, causing house prices to rise more slowly."

Elsewhere, the Inland Revenue declared that 1.59 million properties changed hands in England and Wales during 2002, the highest level since 1988. Halifax Estate Agents also reported an increase in property listings during January, particularly in Scotland and the north, suggesting that the market remains buoyant in these regions and there is still scope for prices to continue to rise.