Double-digit rise in house prices

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UK house prices rose by 10.5% during 2006, according to the Nationwide building society.

Growth in property prices continued to be strong in December, rising by 1.2% during the month, Nationwide added.

The average UK house is now worth £173,746, and is rising in value at the equivalent of £45 a day.

Nationwide said that there were few sellers coming to the market, and as a result house price growth was unlikely to "moderate in the very short term."

We expect worsening affordability and recent interest rate hikes to affect the levels of activity in the market Fionnuala Earley, Nationwide

Overall, house prices increased three-and-a-half-times faster in 2006 than the previous year, Nationwide said.

Undersupply

The prevailing theme of the housing market was undersupply of property - particularly in the buoyant London and south east England markets - helping force up prices beyond most forecasters' expectations.

"Evidence from estate agents continues to show that supply conditions are tight with fewer sellers coming to market," Nationwide economist Fionnuala Earley said.

"We expect worsening affordability and recent interest rate hikes to affect the levels of activity in the market," Ms Earley said.

Continued growth in house prices could add weight to those calling for further interest rate rises in the new year.

Nevertheless, Ms Earley predicted that UK interest rates had "peaked" at 5%, while house prices would jump by between 5% and 8% during 2007.