House prices slow in October

House prices slow in October

In its monthly index, the Nationwide building society said the typical house now costs £169,623.

Despite a cooling in inflation this month, property prices have risen by 8% over the past year. The average house now costs £12,500 more than it did a year ago, the fastest pace of growth since 2004.

Figures published yesterday by the Bank of England showed that demand for mortgages had reached the highest level in two-and-a-half years, suggesting buyers had not been put off by August's increase in interest rates.

However, there was also a fall in the number of estate agents reporting an increase in sales and interest from new buyers in September.

Advertisement starts

Advertisement ends

Nationwide said the problems brought on by rising prices could have an impact across the market. Group economist, Fionnuala Earley, said: "Worsening affordability and expected increases in interest rates will affect both homebuyers and investors."

However, although share prices have been growing at a faster rate than property prices since April 2005, property investors have retained a healthy appetite, perhaps put off by volatility in the stock market.

"With the expectation that the economy will remain in good shape in 2007, prospects for continued positive growth in both the housing and equity markets look fairly good," Ms Earley added.

"However, while property prices are at an all time high, the value of the equity market has only just returned to 2000 levels after reaching a trough in 2003.

"Some may therefore believe that the potential for future growth in the stock market could be rosier than for the housing market. At the margins this could now encourage some investors to begin to switch their preferences towards equities."

Howard Archer, chief UK and European economist at Global Insight, commented: "Higher interest rates and recent buoyant house prices will add to affordability problems and seem likely to increasingly squeeze buyers out of the market.

"Significantly, first-time buyers are finding it ever more difficult and costly to break into the housing market, while a growing number of people have missed mortgage payments recently.

"There are also increasing reports that people are finding it more difficult to trade up the housing ladder. Ultimately, we believe affordability constraints will cause house prices to moderate, although the process looks like taking longer than we have been expecting."

Responding to the figures, the Royal Institution of Chartered Surveyors' chief economist, Milan Khatri, said: "The slowdown in annual house price inflation reported by Nationwide is unlikely to provide relief for first-time buyers, as property price rises continue to run at close to twice that of average wage rises.