House prices still on the climb

HOUSE prices continued to forge ahead in November, and Britain's runaway housing boom looks set to remain in full swing well into next year.

Thanks to renewed strength in the London market, the average price of a home in the capital rose by 1.2% to £133,388, according to figures today from Nationwide, Britain's biggest building society.

Although the increase was less than the 2% jump seen in October, it suggests the momentum has been maintained despite the Bank of England's quarter-point increase in interest rates at the start of the month.

The year-on-year rate of increase slipped slightly from 16.1% to 15.2%.

Nationwide said house price inflation was on course to hit its full-year forecast of 15%. The building society expects it to slow to 9% next year, with the figure for London around 5%.

Alex Bannister, the society's economist, said: 'The South-East, including London, which had experienced a slowdown in house prices, has seen signs of renewed price growth in the latest quarter.

'Despite this month's base rate rise, mortgage rates remain low by historical standards and the labour market remains strong. The housing market looks set to finish-2003 on a strong note and carry over much of the momentum into the early part of next year.'

Today's report will come as a relief to homeowners after claims this week that more than 300,000 households will be in negative equity by 2007, most of them in London and the South-East.

Capital Economics, headed by former Treasury 'wise man' Roger Bootle, warned that those who borrowed huge amounts with low deposits to invest in property at peak prices could find the value of their homes dropping below their mortgages.

Bannister said: 'We don't see negative equity as a widespread phenomenon and, if it does occur in isolated pockets where house prices have been high and deposits low, it won't be sustained.'

However, mortgage payments relative to income are expected to fall only slowly over the next 10 years because low inflation means price rises will fail to eat into home loans to the extent that they did in the past.

As a result, existing homeowners will find it increasingly difficult to trade up to bigger and better houses, Bannister said.

Nationwide's forecasts are based on the assumption that the cost of borrowing will rise gradually to a peak of 4.75% by the end of next year.

'The MPC will be prudent in its approach to raising base rates given heightened sensitivity of borrowers to higher interest rates,' Bannister said.

The British Bankers' Association yesterday added to evidence that the housing market has yet to hit the buffers.

Unveiling record home loans of £17.8bn in October, it said there were no signs of the mortgage market slowing down and strong lending growth was likely to be maintained.

Meanwhile, profit at upmarket estate agency Savills should significantly outperform market expectations after a sharp rebound in the UK property market.

Chief executive Aubrey Adams said the board would recommend a significantly increased final dividend. 'Property markets, after a slow start, have performed better in the second half of the year than expected,' Adams said, adding that prime London residential areas were leading the revival.

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