House prices increase by one per cent

Halifax said a shortage of housing stock continued to drive values up during the month despite emerging signs of cooling homebuyer demand.

The monthly increase helped pushed the annual rate of house price inflation up to 11.1 per cent, up from 9.9 per cent seen in the previous three months.

Continued strength in the housing market is likely to fuel expectations that the Bank of England will raise interest rates when they announce their decision later today.

But the latest housing statistics suggest that the monthly rate of change is slowing, down from 1.8 per cent in February and 1.3 per cent in January.

Halifax noted that March saw the second smallest monthly increase since the interest rates began their ascent in August 2006.

Figures showed house price increases in all UK regions during the first three months of this year.

The biggest quarterly price hikes were recorded in Scotland, which put on 7.5 per cent between January and March, followed by the South West and Wales.

On an annual basis Northern Ireland continued to lead the market. A yearly increase of 37 per cent in the province saw typical house price values break through the £200,000 barrier for the first time.

Halifax put the market's continued strength down to sound economic fundamentals and a shortage of both new and second hand property.

But in an indication that some of the heat is coming out of the sector, approvals for home loans have weakened in the early months of 2007 while buyer enquiries have also fallen.

Tim Crawford, group economist at Halifax, said: "Prices continue to rise in a tight market but there are emerging signs that pressure on householders' finances, partly due to the rise in interest rates since last summer, are dampening housing demand with evidence of reduced market activity.

"We expect the recent rises in interest rates, negative real earnings growth and above inflation council tax bill increases to lead to slower house price growth over the coming months.

"Sound economic fundamentals and an ongoing shortage of housing supply will, however, continue to support house prices."

Howard Archer, chief UK and European economist at Global Insight, said: "Housing market activity is currently still relatively high while an acute shortage of properties means that pricing power is still largely in favour of the vendor in many areas.

"Consequently, house prices are likely to remain relatively well supported in the near term at least, and any slowdown is likely to be only a gradual process.

"Nevertheless, we suspect that over time the growing affordability pressures resulting from higher interest rates, only moderate real disposable income growth and elevated house prices will seep through to squeeze buyers out of the market and limit house price rises.

"Furthermore, it seems highly likely that interest rates will rise to 5.5 per cent in the near term, possibly even today - which will be a major worry to many potential house buyers."