The housing market ended the year on a strong note with prices rising by 1.8 per cent in December, Britain's biggest mortgage lender has revealed.

The increase meant house prices rose by about 15.4 per cent during 2003 to average £142,033, although this was well down on 2002's 26.4 per cent jump, according to Halifax.

The figures were in line with those reported by Nationwide Building Society last week.

But despite December's strong growth, Halifax continues to expect the market to ease during the coming 12 months.

Shane O'Riordain, general manager of group economics, said: "The housing market is undoubtedly strong but there are clear signs the market will continue to slow down naturally as the impact of higher interest rates and a reduction in the number of first-time buyers continues to kick in."

The group expects house prices to rise eight per cent during the coming 12 months, with growth continuing to be stronger in northern regions and weaker in the South.

During 2003 the cost of a home soared by 33.7 per cent in the North, more than twice the average UK rate and well up on the 5.8 per cent recorded in the South-East and 6.7 per cent in the South-West.

Price rises were also strong in Wales, where the average cost of a property jumped by 31.8 per cent.

Halifax said during the year a further 88 towns in the UK saw the average price of a home rise above the £100,000 threshold, meaning that average prices were now more than £100,000 in 80 per cent of the 634 towns it analyses.

It expected growth of about 17 per cent in the North during 2004, compared with rises of just eight per cent in London.

It added that this would mean the North/South divide, which narrowed considerably during 2003, would continue to close during the coming year, before re-establishing itself in 2005.

The number of first-time buyers entering the market during 2003 fell to its lowest level since records began in 1974, with just 330,540 people taking their first step on the property ladder during the first 11 months of 2003, compared with 526,300 in 2002.

First-time buyers were now buying properties which cost 4.27 times their annual salary, compared with 2.46 times in 1993, rising to 5.9 times in London and 5.15 times in the South-East.

At the same time the average deposit has grown to about £20,000 from £5,400 ten years ago, with first-time buyers in London putting down £39,148.

But the group added that even if interest rates rise to 4.5 per cent by the end of the year, as it is predicting, mortgage payments for all homeowners will still account for only 16 per cent of total earnings, well below the long-term average of 21 per cent.

Wednesday January 07, 2004