By David Milliken
LONDON (Reuters) - British house prices showed their biggest rise in three months in January and one measure of affordability deteriorated to its weakest since the financial crisis, mortgage lender Halifax reported on Thursday, fuelling concerns of a property bubble.
Halifax, part of Lloyds Banking Group, said the supply of homes coming on to the market was not keeping up with higher demand buoyed by a positive economic outlook, and warned that weak wage growth may limit future price rises.
"Continuing pressures on household finances, as earnings fail to keep pace with consumer price inflation, are expected to remain a constraint," Halifax economist Martin Ellis said.
The Bank of England is concerned the housing market could overheat, though it has not yet said this is happening. In November it said it would remove mortgage lending incentives from the Funding for Lending Scheme which it launched in August 2012 to encourage banks to lend to households and businesses.
The ratio of house prices to average earnings rose in January to its highest since October 2008 at 4.74 - though this measure of affordability does not reflect the fact that mortgage interest rates are now lower.
House prices rose 1.1 percent in January after dropping by 0.5 percent the month before, roughly in line with economists' forecasts and the biggest rise since October.
House prices in the three months to January were 7.3 percent higher than a year earlier, a slightly slower rate of increase than December's 7.5 percent but still close to November's six-year high of 7.7 percent.
"The strong Halifax data will fuel concern that a house price bubble is developing," said Howard Archer, chief UK economist at IHS Global Insight.
"While concern over the strength of house price rises has been primarily focused on London, it is evident from a number of recent surveys ... that the strength in house prices is becoming more widespread," he added.
Halifax said October's expansion of the government's Help to Buy scheme - which aids buyers who cannot afford large downpayments - was one thing boosting demand, though lower unemployment and a better economic outlook were the main factors.
"Demand has increased against a background of low interest rates and higher consumer confidence underpinned by signs that the economy is recovering and unemployment falling faster than expected," Ellis said.
(Editing by Alison Williams)