House prices increased by 1.3% in January, leaving the annual rate of house price inflation unchanged at 9.9% compared with December. 

The increase shown in the monthly survey from the Halifax today comes despite three recent interest rate rises, but the lender said January's quarter point rise in interest rates is likely to reinforce the impact of the two increases in the latter part of 2006, causing more caution on the part of potential homebuyers. 

According to the Halifax, the average house price is now £188,623.

“The mixed pattern of monthly price rises and falls in December and January is consistent with a slowing market,” said chief economist, Martin Ellis.

Two key indicators of housing market activity fell in December, pointed out Mr Ellis. Firstly, the number of mortgage approvals to fund house purchase declined from 129,000 in November to 113,000 in December.  Secondly, new buyer enquiries fell in December for the first time since May 2005.  

Negative real earnings growth for only the second time in over ten years - average earnings growth, at 4.1%, is below the rate of increase in retail prices of 4.4% – is putting pressure on householders' finances. 

Together with higher interest rates, slower economic growth and a fall in the level of full-time employment (down by 77,000 in the latest quarter), negative real earnings growth will curb housing demand.  We predict that annual house price inflation will ease from 10% to 4% by the end of 2007.