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UK house prices rise at fastest rate since May 2010 - Halifax

A man stands on a balcony in a residential high rise block of flats in Notting Hill in central London October 8, 2013. REUTERS/Toby Melville

LONDON (Reuters) - British house prices are rising at their fastest annual rate in more than three years, mortgage lender Halifax reported on Wednesday, confirming a trend in the market that is giving some support to economic growth.

Halifax said average house prices in the three months to October were 6.9 percent higher than a year earlier compared to a 6.2 percent rise the month before, the biggest annual increase since May 2010 and in line with market forecasts.

Last week rival mortgage lender Nationwide reported a 5.8 percent annual rise in house prices for October, the biggest since July 2010.

Halifax said that in October alone, house prices rose by 0.7 percent, stronger than the 0.4 percent recorded in September but slower than the 0.9 percent forecast by economists.

"Low interest rates, and higher consumer confidence supported by the increasing evidence that a sustainable economic recovery may now be underway, are helping to increase housing demand," said Halifax economist Martin Ellis.

Ellis said demand was also being bolstered by the government's Help to Buy and Funding for Lending programmes, which offer cheap finance to lenders and high loan-to-value mortgages to homebuyers.

Last month Bank of England governor Mark Carney said more housing market activity and consumer spending were driving the economic rebound that Britain's economy has enjoyed since the start of the year.

Purchasing managers' surveys for the services and construction sectors released earlier this week also showed firms reporting stronger housing activity as being behind a strengthening in growth to multi-year highs.

Many economists have worried that the government's housing support scheme risks creating a bubble in house prices, particularly in areas such as London where prices are rising rapidly. However, across Britain as a whole, house prices as measured by Halifax are well below their 2008 peak.

"Nevertheless, there is a mounting danger that house prices could really take off over the coming months, especially if already significantly improving housing market activity ... is lifted appreciably further by the 'Help to Buy' mortgage guarantee scheme," said Howard Archer, an economist at IHS Global Insight.

"It is therefore of vital importance that policymakers closely monitor the situation and are prepared to act quickly and decisively if signs of the housing market overheating become increasingly widespread and pronounced," he said.

The Bank has said it will raise record-low interest rates only if other tools at its disposal to curb a housing bubble - such as tweaking capital rules for banks - fail to work.

(Reporting by David Milliken; Editing by Janet Lawrence)