House prices have grown by 1.4% in January, bringing the annual growth rate to 4.4% according to Nationwide.

Nationwide said that increased confidence amongst buyers was a contributing factor, but it added that strong price rises were unlikely to persist in 2006.

The average house price in the UK is now £158,478, compared to £151,757 at this time last year.”

Nationwide believes that part of the pick up in the market since October reflects a release of some pent-up demand following the cut in interest rates in August and the increased confidence on the part of buyers and sellers as they became more comfortable that the market was heading for a soft landing.

The continued pickup in mortgage approvals suggests that the market will strengthen further over the next few months.

Commenting on the figures Fionnuala Earley, Nationwide’s Group Economist, said: “The housing market got off to a strong start in 2006 with prices increasing by 1.4% in January.

This is the strongest monthly rate of growth since July 2004 when it was 1.9% and the annual rate of house price inflation was more than 20%.

The annual rate of house price inflation in January 2006 is a more
modest 4.4%. Even so, this is a significant increase in price and confirms the strengthening trend we have seen since October.

The key question for the market is whether the strong pickup over the last 4 months will persist. In our view, this is unlikely for a number of reasons. First, while the UK economy seems to have made a
turn and be on a path of recovery, 2006 is still likely to see below-trend growth. Further rises in unemployment are possible and most of the risks seem to be on the downside.

Secondly, affordability remains stretched and it is unlikely that the market could absorb another strong rally of house price inflation. In addition, there are already indications that consumers’ appetite for further unsecured debt may be diminishing and that the amount of extra borrowing against property has slowed.

Growing uncertainty over pensions has made saving more important. While this could generate renewed demand for housing as a form of pension saving in the longer term, consumers may focus on more traditional forms of savings and debt repayment in the shorter term, especially as the stock market recovers”