House prices soar by 16%

House prices soared by a massive 16 per cent over the last 12 months and there is little chance of a Nineties-style collapse, Britain's biggest mortgage lender said today.

The good news for home owners came from the Halifax, which said prices had jumped by nine per cent in the past few months alone.

The bank - widely seen as producing the most authoritative survey of the true state of the housing market - said today the present rate of increase was unlikely to be sustained over the next year, with higher unemployment and weaker income growth putting a lid on further gains.

Unveiling a modest increase in house prices during March, it said the price slowdown eased pressure for any sudden jump in interest rates. The slowdown would be particularly pronounced in London, helping first-time buyers to get a foot on the property ladder.

The average price of a home rose by 0.4 per cent to £102,227 last month, according to the bank, following gains of 1.6 per cent and 1.5 per cent in January and February. The year-on-year rate of increase was 16 per cent.

The Halifax's head of group economics, Gary Styles, said: "Our economic assessment is that house price inflation will ease over the course of this year as higher unemployment and weaker income growth reduces consumer confidence. A sustained easing in house price inflation combined with slower growth in consumer spending should help to reduce some of the pressure on the [Bank of England] Monetary Policy Committee to increase short-term interest rates."

The MPC sets interest rates tomorrow. While the cost of borrowing is expected to remain at a 38-year low of four per cent for now, the City says rates will start rising in the summer to take some of the heat out of the consumer boom.

Mr Styles said first-time buyers were finding it difficult to buy property in many parts of the country.

But he added: "We expect that some easing in house price inflation in 2002 - particularly in London - will provide welcome help to this important buyer group."

Today's news is at odds with other reports suggesting the boom is gaining momentum. Earlier this week, property website Hometrack said house prices across England and Wales surged by 1.6 per cent in March to an average of £120,900.

It lifted its full-year house price inflation forecast from eight per cent to 12 per cent, but said current gains are unsustainable. Nationwide, Britain's biggest building society, will tomorrow raise its 2002 forecast from the current six per cent when it publishes its March house price index.

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