Strong property performance stems rate cut hopes

House prices in England and Wales rose by 0.4% in February as a surge of new buyers entered the market, according to the latest Hometrack housing index.

The report, which is based on data from estate agents, said the number of buyers registering with agents had risen by 26% this month, with London seeing a 35% increase in new buyer interest.

Hometrack said the rise in buyers seeking homes had outstripped the supply of properties for sale, particularly in south-east England, and prices had been pushed upwards as a result.

Agents in London have reported a 0.9% increase in average prices, while those in the south-east have seen prices rise by 0.3% and East Anglia reported 0.5% rises.

In these regions the length of time it takes to sell a property has been declining and in the capital homes are selling in less than five weeks for the first time since July 2004.

The average price of a home in England and Wales is £161,700, according to Hometrack.

Richard Donnell, Hometrack's director of research, said prices were likely to continue an upward trend over the next month or so as buyers continue to return to the market, although most of the growth would be concentrated in the south of England.

"The key issue is whether the momentum of the first few months of 2006 can be maintained, especially after the strong end to 2005," he said.

"Much hinges on the outlook for interest rates, the strength of the economy and the direction of consumer confidence.

"We expect values to keep rising, but the scale of growth over the later parts of the year is set to be far more modest than what we are currently seeing in a supply constrained market".

The surge in buyer interest in February reported by Hometrack follows months of increased activity in the housing market and the busiest January on record in the mortgage market.

In its breakdown of January lending figures published today, the British Bankers' Association (BBA) said its members had advanced £14.5bn to mortgage borrowers over the month, £5.7bn of which was for house purchases.

Although this was 14% lower than December's figure of £16.9bn, it was 25% higher than the £11.6bn advanced in January 2005, suggesting the market has made a recovery.

The BBA said the average mortgage for a home purchase was £126,800 in January.

"Overall, the mortgage approvals and lending data indicate that the more robust housing market activity evident in the second half of 2005 has continued into 2006," said Howard Archer, chief UK economist at consultancy Global Insight.

"This is also strongly borne out by the January mortgage data from the Building Societies' Association and the Council of Mortgage Lenders, as well as Hometrack's February report."

The renewed strength in the housing market could, said Mr Archer, led the Bank of England's monetary policy committee to further delay the long-awaited base rate cut.

"Continuing evidence of robust housing market activity further reduces the chances of a near-term interest rate cut, as it will reinforce rising Bank of England concern that lower interest rates could excessively stimulate the market and increase the risk of house prices moving sharply higher," he said.