The house prices in UK have recorded an annual increase of 8.6 per cent in January, the fastest rate in two years. The latest house price index from Nationwide has showed that property values have risen by 1.2% in January.

This is a strong start to 2010. Industry reaction to the index has been cautious, with some claiming the market has over-performed as a result of supply and demand imbalances and that the growth is unsustainable. There is considerable demand in the market but almost zero supply and this is driving prices up. It is a good start to the year for house prices.

The economy is out of recession and even the labor market decline has started to cover up and shows the signs of turning round. House prices in the UK are still overvalued, with the average house costing 4.1 times the average income, down from five times at the last peak, but still 49 per cent above the 40-year average. The average house price stood at £163,481.

Though the figures are positive, the building society has raised it concern pointing that the recent economic data has been a mixed for the housing market and inflation uncertainties highlight the risk of interest rates rising sooner than expected by the street.

The future path of interest rates had become even more critical for the housing market, particularly in light of the growing proportion of borrowers on variable rates.