House prices up 1.1% in 2009

Average UK property prices rose by 1% in December, bringing the annual increase for the while year to 1.1%, according to the Halifax House Price Index.

The country’s biggest mortgage lender reported that substantial interest rate cuts combined with improvements in the employment market towards the latter part of 2009 helped prop up demand for housing.

The figures put the current value of the average UK home at £169,042, up from a low point of less than £155,000 in April 2009. Average prices dropped by 23% from their peak in August 2007 to their nadir in April 2009, but have recovered by 9.4% since then.

However, the figures are far more subdued than those recorded by rival mortgage lender Nationwide last week. The building society calculated that average prices rose by 5.9% last year, but with prices increasing by just 0.4% in December.

The discrepancy is down to the way the two mortgage lenders report their figures. Halifax compares average prices over three months for its year-on-year figure to give a smoother picture. A straight comparison of average house from December 2008 to December 2009 would have resulted in a figure of 5.6% growth, which is very similar to the Nationwide result.

Figures from the Land Registry figures, which are considered the most accurate as they are based on completions rather than mortgage approvals, and include all sales not just those financed with a loan, are far more pessimistic. Its most recent data showed a 0.3% fall in prices over the year to November. But the Halifax figures were far more positive than many experts had anticipated.

Halifax's housing economist, Martin Ellis, said: “The significant cut in interest rates following the worldwide financial upheaval in the autumn of 2008 has markedly reduced the burden of servicing a mortgage for many households. This has helped to stimulate housing demand, albeit from a low base.

“The recent improvement in the labour market, highlighted by increasing numbers of people in employment in both September and October, has also supported housing demand.” Ellis said he expected prices to remain flat in 2010.

He continued: “The prospects for the market this year will depend on how the UK economy evolves and whether there is a significant increase in the supply of properties for sale. Overall, our current view is that house prices will be flat during 2010.”

Howard Archer, chief UK economist at IHS Global Insight, said he believed we may see further rises early this year, but that he expected a total fall of 5% in 2010.

He said: “Much will clearly depend on whether the economy can develop [its] recovery after the highly probable return to growth in the fourth quarter of 2009, how much further unemployment rises, how much earnings rise, how quickly and to what extent credit conditions ease, and how many properties come on to the market over the coming months.

“On the positive side for the housing market, interest rates seem unlikely to rise for some considerable time to come, and will then probably increase only gradually.”