UK property prices rise again as low interest rates and lack of supply boost the market

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Record low interest rates and a shortage of supply has helped residential property prices in the UK to continue rising, according to the latest published figures.

Average house prices rose 0.8% in August and are now higher than they were at the start of the year, the data from Halifax shows. All the monthly price indices are now showing rising prices amid growing confidence that the house price crash is now ending.

Halifax, like other lenders and the Royal Institution of Chartered Surveryors, is now more optimistic about the outlook for the real estate market in the UK. It had been predicted that prices could fall by 15% in 2009 but now Halifax is expecting prices to end the year 7% down.

Halifax said that record low interest rates, which have filtered down to an estimated four million home owners on tracker-rate mortgages, has encouraged a pick up in demand. This has been combined with a shortage of supply to boost prices.

‘Demand for housing has increased since the start of the year due to better affordability and low interest rates. This, together with low levels of property available for sale, has boosted house prices over the last few months,’ said Martin Ellis, chief economist at Halifax.

Not everyone though is convinced and the spectre of continued rising unemployment is regarded as a factor that could bring house prices down again. Some economists are warning that higher interest rates could be on the cards before the end of the year.

However, Halifax’s analysis shows the proportion of disposable income households devote to mortgage repayments has fallen significantly over the past 21 months, and is below the long-term average of 35% over the past 25 years.

Those who are able to raise mortgages are typically spending 29% of their take-home pay on servicing their debt, well below the peak of 48% in the autumn of 2007 when prices were at their highest.

 

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