January blues over as house prices bounce back

The average cost of a home in Britain rose to £164,172 last month according to mortgage giant Halifax.

The news follows the steep falls amid the pre-Christmas snow disruption, which saw house prices plunge 1.3 percent as snowed-in buyers stayed away from the market.

Halifax said 2011 house prices would be constrained by consumer caution, with spending cuts and tax hikes hitting confidence.

But it noted that fewer sellers coming on to the market would help support prices by shifting the demand and supply balance.

Martin Ellis, Halifax housing economist, said: “The prospects for the market in 2011 are closely aligned with the performance of the wider economy. Consumer confidence has fallen recently, partly as a result of nervousness about the economic outlook.

“On a positive note, there have been further signs that the recent downward trend in prices is causing homeowners to be more reluctant to put their properties on the market. This development should help to relieve downward pressures on prices as long as it is sustained.”

On an annual basis, house prices were 2.4% lower in January, as measured by the average of the latest three months against a year earlier.

The falls are still far from the hefty declines seen in 2008, when the credit crunch saw quarterly drops of 5% to 6%.

However, recent lending figures from the Bank of England revealed the dearth of mortgages being taken out - with 2010 net mortgage lending falling to its lowest level since records began in 1987.

But Richard Sexton, business development director of e.surv said that initial signs on mortgage lending figures show that February will be much more positive.

He said: “Far fewer people were able to get out and about house-hunting in December with snow disrupting travel or simply offering something more fun to do at the weekend.  As a result, fewer applications for mortgages were made and that has led to a sharp dip in approvals.”

“The remortgage market also paused for breath but we think this is a temporary phenomenon and that remortgage volumes will start to pick up again as we move towards the summer and people seek to lock in their mortgages at low rates.”

Howard Archer, chief economist at IHS Global Insight, said today’s rise in house prices was unexpected, coming after rival lender Nationwide reported a 0.1% month-on-month fall in January.

He said the hike was partly a correction after the fall in December, adding: “The 0.8% rise in house prices in January does not materially change our view that house prices are likely to fall by around 5% in 2011 and will end up declining by some 10% from their 2010 peak levels.”

Speculation that the Bank of England may be forced to raise interest rates to combat soaring inflation is also expected to hit house prices, according to Mr Archer.