9% New Year house price rise

HOMEOWNERS received an early Christmas present from Britain's biggest building society today as it predicted the housing boom will run on into 2004

In the second report from a major lender this week predicting the extension of the long-running boom, Nationwide said it expected house prices across Britain to shoot up by a further 9% in 2004 following gains of 15% this year. For London, property price rises of 6% are forecast against 7% over the past 12 months.

However, the advances will be less than those enjoyed at the height of the boom in 2002 when prices surged by 25% across Britain and by 21% in London. Higher interest rates are expected to put the brakes on the market in the latter part of next year.

Group economist Alex Bannister said: 'The housing market will carry considerable momentum into early 2004 and we expect house price growth to be biased towards the first part of the year. Later in the year, rising mortgage rates and slow income growth will dampen confidence.'

But Nationwide moved to soothe fears that an increase in the cost of borrowing would trigger a market crash. If base rates end next year at 4.75% as the City predicts, a typical buyer will see mortgage repayments rise from 27% to 31% of take-home pay.

'Our view is that most borrowers can cope with a small rise in interest rates,î Bannister said. 'However, some borrowers may have significant unsecured debts and may be more vulnerable.'

Mortgage rival Halifax this week forecast that house prices across Britain and in London would rise by 8% next year.