House demand sees prices rise 6pc

A 6.2 per cent annual rise in prices in September has taken average house values to £170,733 and represents the biggest year-on-year increase since 2010 according to mortgage-lender Halifax.

The latest increase follows a 5.4 per cent annual rise in August, which like September’s increase was the strongest rate since June 2010.

On a month-on-month basis, prices rose by 0.3 per cent, equalling the increase in August and marking the eighth month of rises in a row.

Fears have been growing that some stronger-than-expected price rises this year could be leading to a bubble, with borrowers over-stretching themselves with large mortgages.

The new figures have emerged just days after the Government announced it is bringing forward the launch of the new phase of its flagship Help to Buy scheme from January to next week.

That move had already triggered warning that a new housing bubble could be created as increased demand outstrips the supply of new houses.

Evidence that the housing market is already well on the way to recovery will only add to those concerns.

However, Prime Minister David Cameron has argued it is unfair that hard-working families cannot buy houses because they are unable to save the money they need to meet the bigger deposits demanded by mortgage lenders since the banking crisis.

While previous Government schemes have focused on new homes and first time buyers, the latest phase of Help to Buy will stimulate the whole housing market by offering state-backed mortgages to people with deposits as low as five per cent who want to buy a new-build or an existing home.

The lack of homes for sale has also been contributing to the upward march in house prices and Halifax said demand has been outstripping supply in recent months against a background of low interest rates, signs that consumer confidence in the economy is improving and Government schemes such as Help to Buy and Funding for Lending have improved mortgage access.

But it also pointed to signs that the lack of supply is about to ease as more people are encouraged to bring their homes to market.

Martin Ellis, housing economist at Halifax, said: “There are signs that supply is beginning to respond to the pick-up in demand, which if continued should help to constrain the upward pressure on prices.

“The recent strengthening in house prices is increasing the amount of equity that many homeowners have in their home, enabling more to put their property on the market for sale.

“Levels of housebuilding are also increasing, albeit from a very low base.”

Halifax said that despite sustained house price increases this year, the average price in September was still 14 per cent below the 2007 market peak.

It also pointed to official figures showing that the number of new-build houses started in England in the first six months of 2013 was more than a fifth higher than the same period last year.

Howard Archer, chief UK and European economist for IHS Global Insight, said: “Housing market activity is currently still appreciably below pre-crisis levels despite the recent improvement.

“Nevertheless, there is a mounting danger that house prices could really take off over the coming months, especially if already significantly improving housing market activity and rising buyer interest is lifted appreciably further by the Help to Buy mortgage guarantee scheme now starting in October.”

He said policymakers must be prepared to step in and act quickly if the housing market shows signs of widespread overheating.

Last week, the Bank of England’s financial policy committee said the granting of new mortgages and loan-to-value ratios were still at historically low levels and house prices in relation to earnings were at the position they were 10 years ago.