Northern Ireland, where prices increased by 13.2% in 2005, experienced the strongest house price growth in the UK, according to Nationwide’s quarterly regional review released this week.

The average house price there increased by more than £14,500 during the year, the equivalent of £40 per day. This compares with an average price increase of only £14 per day for the UK as a whole. House price inflation was also strong in Scotland where prices grew by 9.3% during the year – the equivalent of £28 per day.

However, house prices fell by 2.1% in the Northern Region, with one of the biggest falls being in Sedgefield.

In contrast England and Wales experienced annual house price inflation of 1.8% and -0.1% respectively in 2005. Prices in England grew on average by £7 a day, exactly half the average rate for the UK, while prices in Wales were at virtually the same level as this time last year.

Quarterly index – Headlines	Q4 2005	Q3 2005	Q2 2005	Q1 2005
UK All Properties Index (Q1 1993 =100)*	319.2	314.4	314.0	310.6
Quarterly change*	1.5%	0.1%	1.1%	0.5%
Annual change	3.2%	2.7%	6.1%	9.9%
Average price in quarter	£158,745	£158,987	£158,853	£154,107
* seasonally adjusted

Behind Northern Ireland and Scotland, Yorkshire and Humberside and the North West were the regions with the fastest annual house price inflation in 2005 at 5.3% and 3.1% respectively. During the final quarter of 2005, prices accelerated in all regions except Wales, Northern and East Midlands regions where prices all fell.

Interestingly prices in the Northern region fell sharply for the second quarter in a row. During 2005 the average house price in this region fell by £2,500, a reduction of 2.1%. The Northern region includes the large conurbation of Durham which experienced falls of more than 12%. Within this area, prices in the Sedgefield Local Authority, the location of the Prime Minister’s constituency, fell by more than 10%.

First-time buyers

Unsurprisingly first-time buyers in Greater London find it hardest to afford to buy. More than 66% of take home pay is eaten up in mortgage payments compared to only 33% in Scotland. But affordability improved in London and the South East in 2005.

During the year the proportion of take home pay taken up by mortgage payments fell by more than 2.5 percentage points in London. Due to rapidly increasing prices affordability deteriorated most in Northern Ireland where mortgage payments account for 44.2% of take home pay compared to 40% at the end of 2004.

Nationwide is cautiously optimistic about the economy in 2006. The slowdown during 2005 has largely been driven by consumers, as higher interest rates and fuel payments have left them with less discretionary income to spend – hence the disproportionately hard times seen in the retail sector.

As oil prices fall out of the equation, reducing the MPC’s inflationary concerns, Nationwide expects there to be room for at least one further cut in interest rates in 2006, which should help to stimulate the economy back to trend growth by 2007.

On the fiscal side, the Chancellor avoided large rises in consumer taxes which could have affected prospects for a recovery. Instead he decided to raise revenue from oil companies and borrowing and allowed himself leeway by changing the timing of the economic cycle. Overall, the budget is probably quite neutral for next year, but this places further pressure on consumer spending and investment to drive the recovery, and there is uncertainty surrounding both of these.

Nationwide’s expectation is that UK house price growth will remain firmly in low single digits in 2006 as the economy recovers, with affordability continuing to constrain prices until earnings restore the balance.