UK house prices bounce back

HOUSE prices increased for the eighth time in nine months in March, but experts warns more property being put up for sale could dampen further inflation.

The latest house price index shows prices rose by 1.1 per cent during March, partly offsetting February's 1.6 per cent fall.

The rise means prices during the first three months of 2010 were 0.6 per cent higher than in the final quarter of 2009.

However, Martin Ellis, housing economist at Halifax, says this was smaller than the 3.6 per cent rise between the third and fourth quarters of 2009 – suggesting a slowdown in the trend rate of house price growth.

The end of the stamp duty holiday at the start of the year, along with the bad weather both had an impact on demand, he adds.

While the new stamp duty holiday – for first-time buyers on all properties costing up to £250,000 – should help stimulate demand, the increase in the number of properties for sale could contain the upward pressure on house prices.

"Property sales in England and Wales have increased for three consecutive quarters after reaching a low in 2009 quarter one,” said Ellis. “Indeed, sales in the second half of 2009 were one third higher than in the second half of 2008."

The general election in May is also acting as a constraint on house price inflation.

Catherine Penman, head of research at property consultancy Carter Jonas, said: "The property market is in a kind of limbo at present and we do not expect a clear trend to emerge until after the general election when the true state of the public finances is laid bare and a clear strategy presented."

She added: "We are likely to see prices suppressed in April when we would normally expect to see a flurry of activity post Easter."

Howard Archer, chief European and UK economist at IHS Global Insight, believes house prices will be erratic throughout 2010.

"We still suspect that prices may very well be no better than flat over the year," he said. "The overall significant house prices rises that have been seen since early 2009 are out of kilter with the overall economic fundamentals."

Archer points to the lack of mortgage availability along with unemployment levels and the delicate post-recession economy.

However, he says some support for house activity and prices will come from the new stamp duty holiday.