House prices rose 1.3 per cent in December, defying predictions of a property price crash.
However, data from Halifax shows annual house price growth in the three months to December fell to 5.2 per cent from 6.2 per cent in November and the 11.4 per cent in August.
The prediction for 2008 is now flat house growth, with prices held up by a strong economy – with high levels of employment – and the Bank of England’s predicted interest rate cuts for 2008.
Martin Ellis, chief economist at Halifax, said: “This mixed pattern of monthly price rises and falls is a typical characteristic of a subdued market.
“Overall, the housing market continued to slow in the final quarter of 2007 with prices slightly lower than in the preceding quarter.
“Higher mortgage repayments in response to the series of five interest rate increases between August 2006 and July 2007 and falling real earnings have put pressure on households’ income, resulting in a slowdown in both house price growth and activity in recent months.”
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), said the Halifax figures did not mark at turning point for the market.
“Our suspicion is the market environment is likely to remain challenging for at the least the first half of this year and that activity levels will remain subdued,” he said.
“However, unless inflation proves an increasing barrier to the Bank of England’s ability to lower base rates there is unlikely to be a material decline in house prices.”
Mr Rubinsohn went on to explain mortgage lenders were key to the future of the property market – along with the effects of the credit crunch, which are making securing a mortgage harder quick payday loan.
“A key issue for first-time buyers eager to take their first step onto the property market in this climate will be the willingness of lenders to provide finance on attractive terms,” he said.
“The slippage in money market rates since the start of the new year suggests that there is more chance of further interest rates cuts being passed on more fully to borrowers but just as important will be the willingness of lenders to maintain loan to value ratios.”
However, Howard Archer, chief economist at Global Insight, expects house prices to fall by three per cent over 2008.
“While the 1.3 per cent rise in house prices reported by the Halifax is undeniably a surprise, it is likely to be largely a correction after the particularly marked overall fall in prices through the previous three months,” Mr Archer said.
Despite the predicted stagnation of property values, Halifax is reminding property owners that house prices have risen 182 per cent over the last decade – making a £70,000 house in 1997 now worth £197,000.