House price rises gather pace

THE UK property market saw a slight pick up last month, confounding pessimists' predictions of a crash. House prices rose 0.2% in September compared to 0.1% in August, according to the Nationwide building society.

The annual rate of increase fell to 17.7% from 18.9% the previous month, with the average home now worth £153,743. The society ruled out large falls in values and believes prices will rise a further 2.5% by the end of the year to take the total 2004 increase to 15%.

The society also warned that the recent boom – which has seen house prices double in the past five years – had made it harder to trade up the property ladder than any time in the last decade.

'It is the more expensive properties, such as detached houses, that have seen prices increase fastest in money terms,' it said in its quarterly housing market review.

In the West Midlands, for example, those looking to move from a £145,000 average semi-detached home to a £214,000 detached property need to find £30,000 more than they did in the mid-Nineties.

The regional house price growth picture remains broadly unchanged from the last quarter, with prices rising fastest in Wales by 34% from a year ago, in the North by 30%, and the North West by 28%.

Annual house price growth was again slowest in London, where it grew by 11%, and the outskirts of the city, up by just 10%.

The figures follow a survey last week from market analyst Hometrack showing prices fell 0.3% in the month to mid-September, the largest fall since the measure begain in early 2001. And yesterday, the Bank of England said monthly mortgage approvals had slowed from 100,000 to 96,000 - its lowest rate in four years - suggesting a series of interest rate hikes since last November are causing the UK housing market to cool.

Historic analysis from broker Gerrard suggests a dip in mortgage approvals below 100,000 equates to house price inflation of between 5% and 10%. 'To get to this range by the year-end, would imply some monthly falls in nominal prices,' said Simon Rubinsohn, chief economist.

A further rise in interest rates could further knock the confidence of potential homebuyers.

Nationwide said that in June the market was expecting rates to hit 5.75% by September 2005 but that view had since fallen to between 5% and 5.25%. 'We believe that rates will rise just once more in the current cycle – in November – meaning the base rate peaks at just 5%,' it said.

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