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House prices In May rise by record 4.2%

House prices are still rising at an astonishing rate, with Halifax&#39s monthly index showing prices rose by 4.2 per cent in May, the biggest monthly rise on record.

Prices have rocketed by 18.5 per cent in the past year, with the average house price at £107,152 compared with £102,808 in April this year and £90,382 in May 2001.

The 4.2 per cent monthly rise compares with a 0.7 per cent growth in prices between April to May.

Halifax says house prices are being driven up by a combination of low interest rates, low unemployment and a shortage in supply.

It says the ratio of house prices to average earnings is still relatively low, as are mortgage payments as a proportion of income, meaning that owning a home remains affordable for most people.

Although first-time buyers are finding it increasingly difficult to buy properties, Halifax says this will act as a drag on demand which will eventually cause house price inflation to ease.

Group economist Martin Ellis says: “A combination of very low interest rates and unemployment has boosted housing demand which, together with a shortage of suitable properties for sale, has driven prices up sharply.

“It is clear that house prices will now slow as quickly as we predicted earlier in the year. Probable interest rate increases in the next few months should ease the pace of future house growth.”

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