Rate rises sink house price inflation

Further evidence of a slowdown in the property market emerged today. House prices last month saw the smallest increase since November 2003, according to the Halifax monthly house price index.

The figures showed that prices rose by 1.2% in June, well below the six-month average monthly inflation of 2.1%, with the average UK house now costing just under ?160,000. Martin Ellis, chief economist at Halifax, said the drop in house price inflation suggested that the increases in the cost of borrowing are beginning to curb housing demand.

"The biggest price rises in the last year have been in northern England and Wales. There were, however, signs of a slowdown in these parts of the country with prices rising by less in the second quarter than in the preceding quarter. We expect this trend to continue during the second half of the year, contributing to slower UK house price inflation," said Mr Ellis.

London and Northern Ireland saw the lowest increases over the last three months, with prices rising by 1.8% in both regions. The greatest increases over the last quarter were in Scotland, where prices rose by nearly 12%.

The difference in prices between the north and south of the country continued to narrow. In the first quarter of 2004, the average house in the south cost 2.19 times as much as its northern equivalent. In the second quarter, that difference had shrunk to 1.74 times, the smallest gap in five years. The increases in prices in the north of the country are causing problems for people struggling to buy their first property.

The number of first-time buyers has fallen significantly over the past few years. Only 30% of buyers were purchasing their first property in the first five months of 2004, according to the Council of Mortgage Lenders.

However, first-time buyers are now putting up bigger deposits than before when buying a home. From January to May this year, the average mortgage taken out by first time buyers was 87% of the value of the property - while in 1996 and 1997, the average loan was 95% of the purchase price.