Economy tracker: House prices

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House prices have increased as activity in the housing market has picked up sharply at the end of 2013 following a few years of relative stagnation.

The Halifax survey said that prices had risen by 7.5% over the course of 2013, while the Nationwide said house prices were up at an annual rate of 8.4%.

The Nationwide compares prices in one month with the same month a year ago. However, the Halifax compares a three-month period with the three-month period in the previous year.

On each measure, the average price of a house also went through the £170,000 mark for the first time in five years.

However, the figures are still below the peak of the market in August 2007, when the average price was almost £200,000.

This is a UK average figure, driven by London and the south east of England. Some parts of the country have seen relatively little house price growth.

Understanding house prices:

• Numerous house price indexes are published, which often have different methods of calculating values and how they have changed

• Two of the UK's biggest mortgage lenders - the Halifax, now part of Lloyds Banking Group, and the Nationwide, produce the first estimates of house prices each month - each based on their own mortgage data

• The Land Registry is widely recognised as the most comprehensive survey in England and Wales, as it is based on the end of the buying process when a transaction is registered

• Responsibility for calculating the government's measure of house prices has now transferred from the Department for Communities and Local Government to the Office for National Statistics.

• Other surveys consider the confidence of estate agents, asking prices among sellers, or prices quoted on websites

Background:

The average price of a home in the UK peaked in late 2007, then plunged rapidly in 2008 before recovering in 2009 and then reaching a plateau in 2010 and 2011. By 2013 things started to increase again.

The housing market was the first area to be affected by the credit crunch as banks curtailed their lending, making it more difficult for buyers to get a mortgage.

This continued, with banks uneasy about the eurozone crisis, and meant property values failed to pick up for some time.

The whole financial crisis had started in the US housing market where banks had lent money to "sub-prime" borrowers.

When these borrowers defaulted on their mortgages in large numbers, the banks were left with bad debts - many of which had been packaged up and sold on to other financial institutions.

This infected the entire financial system and meant that banks stopped lending to each other - creating the credit crunch.

The first UK bank to be affected by the seizing up of financial markets was Northern Rock, which had to be rescued by the British government.

A lack of mortgages meant the market started to stagnate and the properties that did change hands went for less than they would have done a few months previously.

Some homeowners who have taken out mortgages with a high loan-to-value ratio or borrowed extra money against the value of their houses are still facing the prospect of negative equity.

However, government schemes aiming to kick-start the market appear to have had some effect, leading the debate to discussion over whether they would create an artificial house price bubble and another debt-fuelled house price boom.