House prices soar 16.5% in year

HOUSE prices surged by a record 3.4% this month and there are no signs that the dramatic spring property boom - the strongest since the late Eighties - is set to collapse. Nationwide building society, which compiled the latest figures, today went back on its earlier prediction that the current upsurge is unsustainable in the light of the latest numbers.

The extraordinary April figures mean that prices have risen by 16.5% in a year and by 90% since the housing market started to recover from the early Nineties crash six years ago.

Nationwide said that the cost of an average home has risen by just over £14,000 in the past year and £50,000 since 1996, to just over £100,000. But despite the housing boom, homes are more affordable now than at any time since the Second World War, thanks to interest rates at 40-year lows and rising earnings.

Fears about the housing market becoming overheated and repeating the market crash of the late 1980s are dismissed by Nationwide economist Alex Bannister. He said mortgages are more affordable than they were then. It now takes 25% of an average pay packet to service monthly repayments on a mortgage, against a peak of 58% in the last boom, when interest rates peaked at 15%. Bannister also revealed that it now takes 5 1/2 years of take-home salary to pay off an average mortgage, whereas then it took seven years. He concluded that the housing 'market looks sound'.

The housing boom will come to an end only if major British job losses are coupled with a downturn in the US economy and a decline in the pound, Bannister said. Instead he forecasts 'a steady pattern of economic growth for this year and next, accompanied by low inflation and interest rates nudging back towards 5%'.

On Monday Deputy Governor of the Bank of England David Clementi said there was no need to raise base rates to curb the boom. Fears of a property price slump were premature, he said. 'As with all imbalances, this situation will have to be resolved. But this need not necessarily involve a sharp correction in property prices,' he said.

In London, house prices are nearly eight times average take-home pay, with first-time buyers having to find ever larger deposits. But that is not deterring them. There were 75,000 first-time buyers in London in 2001, up 26% on 2000.

The London and South-East market received a further boost today as it was revealed that 1,000 London partners in accountancy firm PricewaterhouseCoopers are due to benefit from £688,000 windfalls after their firm's flotation on the New York Stock Exchange. Most of them are expected to spend their windfalls on new or second homes.