House prices increased by a seasonally adjusted 0.8% in January and the average price of a property in the UK has now reached £163,748, Halifax said today.

Commenting, Martin Ellis, Chief Economist, said: "The housing market continues to slow with the annual rate of house price inflation easing further in January. House prices have increased by only 1.4% over the past six months, causing the annual rate to decline from a peak of 22.1% last July to 13.7% in January. This is the lowest annual rate since December 2001."

"The reduction in house price growth and activity since mid 2004 has been a result of the increasing affordability difficulties facing first-time buyers and the rise in interest rates since late 2003, which have curbed housing demand."

"The ongoing strength of the UK economy and the labour market remain solid foundations for the housing market, ensuring that it remains in good health. The second successive monthly rise in house prices in January suggests that the market is undergoing a measured slowdown."

Market indicators suggest that the decline in activity may be beginning to level out. The number of loans approved for house purchase has fallen by one-third since May 2004 when activity began to fall, according to the Bank of England. There was, however, a modest rise in December to 83,000 from 77,000 in November (seasonally adjusted).

Sales recorded by estate agents were unchanged in December, marking the first time in nine months that sales did not fall, according to the latest RICS survey. The survey also showed that new buyer enquiries were broadly steady in December for the second successive month following a sharp decline between May and October 2004. Halifax Estate Agents also saw the first upturn in sales agreed for six months in January.

The housing market is underpinned by strong economic fundamentals, commented Halifax. The UK economy grew by 3.1% during 2004: the fastest rate of growth for four years. The strength of the economy has been reflected in the labour market with the number of people in employment in the three months to November up 271,000 compared with a year earlier.