North leads the way as property prices keep on soaring

Property prices rose at their strongest rate since the beginning of 2005 in the latest quarter, increased by 7.7% from a year ago, while the number of sales was up by almost a quarter, the Land Registry reports today.

The renewed strength in house prices this year is thought by economists to be a significant reason behind the Bank of England's interest rate rise last week which took the base rate up to 4.75%.

The Land Registry says the average selling price of houses and flats in England and Wales was £199,184 in the April to June period, up 3.3% from the first quarter and 7.7% from the same quarter in 2005. The quarterly rise was the highest since the third quarter of 2005.

All regions of England and Wales saw a rise in property prices in the quarter, with the biggest coming in the north and north-west, where prices rose 11% year on year. Yorkshire & Humber came next with an increase of 10% while Greater London was in fourth place with a rise of 8.3% to an average of £317,679. The number of properties sold for more than £1m rose to 1,246 in the second quarter from 718 in the same period last year. Of the new total, almost two-thirds of £1m-plus houses were sold in Greater London.

The smallest rise was in East Anglia where prices were up 4%, just below the East Midlands on 4.4% and the south-west - a former hotspot - on 5.3%.

The Land Registry says a total of 26,430 properties were sold in the period, a rise of 24% on the second quarter of last year. The number of sales in London rose 26%. The largest rise in sales was seen in in the south-west, at 30.3%, while the smallest was in the north, at 18.9%.

The Land Registry figures lag behind those of lenders such as the Nationwide and Halifax, which are based on mortgage offers rather than completions. It has a much bigger sample base, however, and includes cash sales as well as mortgaged ones. But the Land Registry figures are a simple average and are not seasonally adjusted. Its figures suggest that the housing market did not lose momentum in the second quarter of the year, as Halifax data suggested.

The most recent data on the housing market has been confusing. The Halifax last week reported that the average price rose by 0.2% in July from June whereas the Nationwide's figures showed a hefty 0.8% monthly increase. The Halifax says house price annual inflation slid to 8.8% last month while the Nationwide reported 5.9%, the highest figure it has reported for 15 months.

"The housing market is solid rather than spectacular at the moment. It is a bit patchy and the strength is mainly in London and the south-east," Ed Stansfield, housing market analyst at Capital Economics, said.

He believes the Bank of England's interest rate rise could have a significant effect on the market, as its quarter-point cut in rates last August did. "It may have a large psychological impact as a lot of people are on the edge of the comfort zone as far as affordability is concerned and this could push some of them beyond it."

The recovery in the housing market since late last year has surprised many in the City, who thought that the slowdown in the market between mid-2004 and mid-2005 would continue into this year, especially as house prices remain well above their long-term relationship with average earnings.

The Bank's rate cut a year ago and a sharp fall in long-term interest rates late in 2005, which brought down the cost of fixed-rate mortgages, combined to give the market an unexpected fresh wind.

Milan Khatri, chief economist at the Royal Institution of Chartered Surveyors, expects the Bank to add to last week's interest rate rise, with a further 0.25% this year, which will make it even harder for first-time buyers to enter the market and will lead to a housing market slowdown next year.

"However, we see the Bank of England's pre-emptive action in raising interest rates as a welcome move to forestall future inflation pressures in the economy, and is the best means of avoiding the scenario of the early 1990s when high and rising inflation contributed to a hard landing for the housing market," he said.