House prices increased by 0.2% in July following successive declines in May and June. This mixed pattern of monthly price rises and falls is a typical feature of a more stable housing market, the Halifax said today in its monthly house price index.

The average value of a property is now £177,020, some 8.8% higher than in the same month last year but technical factors contributed to this, said the report, explaining that corresponding figures for the same month last year were weak.

The strengthening UK economy and improved buyer confidence gave the housing market more momentum than Halifax expected in the first half of 2006.

"We have slightly increased our forecast for house price growth this year from 3% to 5%," said Halifax chief economist Martin Ellis. "This forecast (5%) is below the long-term average of 8% but is in line with the reported increase in 2005."

A strengthening economy, high levels of employment – currently 223,000 higher than a year ago - and low interest rates will continue to support housing demand over the remainder of 2006, ensuring that the market remains in good health, said the report.

Martin Ellis commented: "There are, however, increasing signs that both the upward trends in prices and activity levels are easing. House prices have increased by only 0.9% in the past four months compared with a 3.3% rise in the preceding four months. Activity has also stabilised with the number of loans approved for house purchase down 2% in 2006 Q2 compared with Q1, on a seasonally adjusted basis, according to the latest Bank of England figures."

"A continuation of these developments, together with the much stronger pattern of house price growth in the second half of 2005 compared with the first half, should mean that annual house price growth falls during 2006 H2."

Constraints will curb housing demand

"Substantial increases in utility bills and above inflation council tax rises are putting pressure on householders' finances with the majority of the impact of these increases yet to be felt," said Ellis. "The upward movement in the pricing of fixed rate mortgages in the past few months and mounting speculation of higher interest rates are also likely to constrain demand in the coming months. Additionally, the ongoing historically high level of house prices relative to average earnings will curb demand. These factors are expected to constrain housing demand and, therefore, reduce house price inflation over the remainder of 2006."