Halifax index corrects inflation figures

The average UK house price rose to £121,794 in December, the latest Halifax house price index reveals.

The index records a monthly change of -2.1%, but Halifax is quick to point out this apparent drop is “purely attributable” to technical adjustments made to December&#39s calculation.

These include the inclusion of properties costing in excess of £1m. The Halifax&#39s previous policy of excluding such homes has been criticised for decreasing the accuracy of the index.

The inclusion of £1m+ properties shows the slowdown in the top end housing market. The inclusion of this data helps bring down the annual rate of house price inflation quoted for November from 29.2% to 26.4% for December.

Nonetheless, Halifax says underlying house price inflation increased by approximately 1% for December.

With the adjustments made, annual house price growth during 2002 has been the strongest in the Midlands. East Midlands saw the largest annual rise of 42%, whilst in the West Midlands prices have risen by 35.8%. At 32.7% and 28.1% respectively, the South-West and Wales have also all seen house prices exceed the UK average.

House prices in other regions grew at a slower rate during 2002; Yorkshire and Humber at 26.3%, South-East at 25.8%, North at 25.5%, East Anglia at 20.3%, Greater London at 19.4% and Scotland at 11.6%. Annual house price inflation was weakest in Northern Ireland at 5.8%.

Halifax says affordability remains very good, with mortgage payments representing 15% of gross earnings for a typical new borrower, significantly below the long run average.

It expects house price growth of around 9% for 2003.

Martin Ellis, chief economist at Halifax, says: “House price growth in 2002 was one of the highest on record. The combination of low interest rates and low unemployment, and a persistent shortage of properties available for sale, were the main factors creating last year&#39s very buoyant market.

“The continuation of low interest rates, high levels of employment and the low proportion of earnings taken up by mortgage payments for a new borrower – which stands at 15% – will provide a solid foundation for housing demand over the coming year.

“Nonetheless, the difficulties that increasing numbers of first-time buyers are facing in getting on to the housing ladder will curb demand causing house price growth to slow.

“Accordingly, we expect house price inflation to slow from 26% in the last quarter of 2002 to 9% at the end of 2003.

“The biggest price rises over the past year have been recorded in the Midlands, the South-West, Wales and northern England as buoyant conditions have spread from London and the South-East to other parts of the country.

“London has slipped down the regional house price growth league, resulting in a narrowing in the wide gulf between prices in the capital and the rest of the country during the past 12 months. We expect this pattern to continue during 2003.”