The revision reflected the greater upward movement in prices than was expected during the first four months of the year. HBOS said the strength in prices was largely driven by a combination of greater economic momentum and more acute supply shortages than predicted.
It added an increase of 6 per cent would be one of the smallest rises since 1995 and would be below the long-term average of 8 per cent per annum recorded since 1983.
HBOS stated that house price growth would moderate in the second half of 2007 as pressure on householders’ finances from interest rates and increasing food prices would curb demand. Figures showed that house price inflation was slowing, with prices increasing by less than 0.5 per cent for the second successive month in June.
However, a shortage of both old and new properties for sale would support house prices, as official household projections suggested that the shortfall in new homes being built was more acute than previously estimated.
Martin Ellis, chief economist, commented: “While house price growth was stronger than expected during early 2007, there are now more signs that the market is slowing. We expect this to continue. House price inflation should ease over the second half of 2007.”
Rod Murdison, proprietor of Murdison & Browning, said: “The difficulty when looking at the different indices is that there is huge variation. If prices do go up 6 per cent, it is unnerving to think the Bank may increase rates further as it can take 18 months for rises to take effect.”
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