House prices rose by 0.5% in October, driven by a widening gap between supply and demand and above average growth in prices in London and the South East, Hometrack has reported.

The supply of homes for sale fell by 1.6% in the month following a 0.3% decline in September. Growth in new sales being agreed is running at 4-5% per month and Hometrack is continually eroding the stock of homes for sale. In contrast, levels of demand have grown by 3% in the last two months. Improving confidence amongst buyers has been fuelled by low mortgage rates and positive news on a recovering housing market.

Richard Donnell, director of research at Hometrack, said: “The strongest increase in demand over October was seen in London (+6.4%) and this is maintaining the pressure on prices which grew by 0.8% over the month, the same as September and down slightly on August (0.9%). Price rises have been accelerating across the South East where they increased by 0.7%, up from 0.6% in September. Across all other regions prices grew at a below average rate, with the exception of the North where prices remain static.

“The net result of the growing scarcity has been achieved prices getting closer to asking prices – the proportion of the asking price being achieved has jumped to 95.2%, close to its all-time high of 95.7% (June 2007). The proportion has grown across all regions in recent months as buyers have been willing to pay a larger proportion of the asking price to secure a sale.”