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's calculation.
These include the inclusion of properties costing in excess of £1m. The Halifax's 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's 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.”