The cost of an average home in the UK is continuing to rise, as the latest figures from industry bodies and lenders suggest that the market is strengthening.

The strong UK economy, high employment rates and healthy wage inflation have all contributed to apparent growth in the property market.

A report by lender Nationwide found that house prices in Britain rose during the third quarter of 2006, with annual house price inflation up to 6.9 per cent over the quarter, the fastest rate of annual growth since the first quarter of 2005.

The data shows that the quarterly growth rate rose to 2.1 per cent between July and September, with the average new home in Britain costing £168,460, up from £157,627 for the same period of 2005.

The average house price in London rose particularly sharply during the third quarter of the year by 2.5 per cent, to an average of £259,646, with the highest price gains recorded in west London.

The Quarterly Regional Review also reports steep house price rises in both Northern Ireland (up by 8.7 per cent over the quarter) and Scotland (4.7 per cent).

Fionnuala Earley, Nationwide group economist, said: "House prices increased in every region of the UK over the last twelve months, supported by robust economic conditions and high levels of immigration across all parts of the UK."

The latest statistics indicate that an increase in interest rates to 4.75 per cent in August this year has not yet filtered through to the property market.

Experts are currently predicting that the Bank of England's Monetary Policy Committee (MPC) will introduce a quarter point increase in the base rate of interest to five per cent by the end of the year in a bid to cool the housing market.

Government figures from the Department of Communities and Local Government recently indicated that the price of an average home in the UK rose from £194,454 in July to £197,631 in August this year.

The department's mix-adjusted House Price Index for August 2006 rose from six per cent over the year to July 2006 to 7.7 per cent over the year to August, with strong price rises for bungalows and detached houses.

The government data also suggested that house price inflation in London and the south west is leading the market.

RICS chief economist, Milan Khatri, commented: "With the economy growing firmly and households viewing their finances as strong, the housing market will remain robust in the coming months."

A study by the Royal Institution of Chartered Surveyors (RICS) this week claims that the strong UK economy is fuelling housing market growth, with property prices growing at their fastest rate in four years.

The organisation reports that five times as many of its members witnessed price rises in September this year than observed falls, marking the 11th consecutive month of increases.

Estate agents nationwide claim that buyers are returning to the market and enquiries from prospective buyers soared for the 16th month in a row this September, with London seeing a sharp rise in gazumping.

RICS spokesman Jeremy Leaf said: "Greater economic activity has created a ripple effect in house prices across the country. With stocks of property low and buyer enquiries on the increase, sellers remain in poll position to benefit in the short term.

"Continuing house price rises will make it difficult for the Bank of England to leave the base interest rate level at 4.75 percent, unless the economy shows unexpected weakness."

Analysts are increasingly expressing concerns about affordability levels in Britain, with a growing number of first-time buyers now priced out of the housing market and property price inflation continuing to outstrip wage increases.

A number of recent studies have shown that, with demand continuing to dramatically outstrip demand, house prices are unlikely to fall in the near future.

A recent poll suggested that half of UK graduates cannot afford to purchase their first home at the moment, with others putting off saving or even having children in order to get a foot on the property ladder.


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