Estimates of house price inflation can be misleading as they hide the value added to homes by owners making improvements. This is the key finding of Legal & General's latest Moving Intentions survey.

Legal & General's study shows that people who bought their homes in the last two years have spent on average five per cent of what they paid for the property on subsequent improvements. However this home improvement factor is not discounted when figures for the growth in house prices are published.

Stephen Smith, Director Housing Marketing commented, "Most people like to undertake some changes when they move into a new home. Improving the quality of homes in this way is good for the UK's housing stock generally. Comment on the continued rapid rise in house prices distracts attention from this improvement in housing quality."

"Concerns remain though that rapidly rising house prices are making it difficult for first time buyers and key workers to buy properties", continued Stephen Smith. "However there are signs in the market that as the rate of house price inflation slows down, affordability is improving. We expect over the next year that house prices will rise by around a more modest amount - perhaps five to 10 per cent".

Since homeowners were last canvassed for their views in April 2002, the number who believe interest rates will rise has increased. Nearly half (48 per cent) now expect interest rates to be higher in 12 months time than now compared to 34 per cent who held this view in April. This conflicts with current expectations in the market which suggest that the next move from the Bank of England on interest rates could be downwards.

By contrast the number who now believe their homes will continue to grow in value has decreased from 73 per cent in April to 53 per cent now indicating a growing view that the market is stabilising.

11 per cent of homeowners expect to move home within the next 12 months and 14 per cent are likely to remortgage.

Stephen Smith said, "It's a buyers market for mortgages at present with some terrific deals to be had. Reviewing mortgage arrangements every year or two should be a must for all homeowners to check if remortgaging could save them money or get them a mortgage better suited to their circumstances."