LONDON—U.K. house prices posted a surprise gain in January compared with December, mortgage lender Halifax said Friday, attributing the rise to a monthly fluctuation rather than a significant change in market conditions.
The Halifax house price index rose 0.8% in January from the previous month to an average price of £164,173 ($265,041), partly making up for a 1.3% drop in December.
Martin Ellis, Halifax housing economist, said it is likely there will be further price fluctuations in monthly terms, but overall, property values shouldn't move significantly this year. "We expect limited movement in house prices overall this year. There are however, likely to be some monthly fluctuations with the risks on the downside."
Prices were down an average 2.4% in the three months to January from the corresponding period a year earlier, deeper than the 1.6% year-to-year fall in December and the predicted 2.1% decline.
The Halifax focuses on the quarterly year-to-year comparison because it says it smooths out short-term fluctuations and provides a better picture of underlying trends in the market. Other surveys of house prices have shown different monthly movements of late, but the picture of a year-to-year decline is consistent. On Monday, rival lender Nationwide said prices slipped 0.1% on a monthly basis, contrasting with Halifax's rise—but it also said prices were down in annual terms, for the first time in 17 months.
The market has been dampened by a mix of negative factors. Record-low Bank of England interest rates have failed to keep prices rising as potential buyers are put off by tight lending conditions, fear of unemployment, and high inflation—which has eroded many people's income in real terms, and left them wary of taking on the burden of a large mortgage.
"The prospects for the market in 2011 are closely aligned with the performance of the wider economy," said Halifax's Mr. Ellis. "Consumer confidence has fallen recently, partly as a result of nervousness about the economic outlook."
Howard Archer, economist at IHS Global Insight, said the property market also faces a threat from the possibility that the BOE raises interest rates from their all-time low of 0.5% to counter persistently high inflation.
"Any early interest rate hike would be bad news for the housing market and likely to weigh down on prices—not just the rate rise itself but also the impact on potential house buyers' psychology resulting from the fact that they would be facing rising interest rates," he said.
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