House prices up £100 a day

House prices have soared by 19 per cent over the past year, according to figures out today.

The latest survey from the Nationwide shows the property market is also enjoying a remarkable spring spurt.

Prices were up 2.1 per cent in this month alone to an average £145,918 - the equivalent of a £100 a day increase.

However, the rise has increased fears that the Bank of England will lift interest rates by a further quarter point to 4.25 per cent next week.

Nationwide said the market was being driven by spiralling prices in the cheaper North while gains in London and the South-East were lagging behind.

It played down fears of an early Nineties-style crash, saying the market would gradually run out of steam of its own accord. Kate Barker, a member of the Bank's monetary pol icy committee, agreed, saying house prices might be set for a fall but a collapse was unlikely.

Nationwide ' s group economist Alex Bannister said: "The economy is set to stay supportive to the housing market with unemployment remaining low and confidence relatively high.

"However, muted income growth, gradually rising interest rates and buyers downgrading expectations of future house price growth will cause the market to cool naturally over the second half of the year."

Mr Bannister expects rates to rise to 4.75 per cent by the end of the year - in line with City expectations.

This would take initial mortgage payments for a typical buyer to 32 per cent of takehome pay compared with 27 per cent now and the peak of 39 per cent in the early Nineties. The latest price rise highlights the problems firsttime buyers face trying to get a foot on the property ladder.

While sales activity is expected to remain strong over the summer, most of the buyers will be existing homeowners or buy-to-let investors.

Only 350,000 first-time buyers are expected to enter the market this year compared with 521,000 in 2002.

"Borrowers need to take a prudent approach to the amount of debt they take on," Mr Bannister said.

Ms Barker last month published a Treasury-commissioned report which concluded that between 70,000 and 120,000 extra houses need to be built each year to keep up with demand.

Addressing the annual dinner of the Yorkshire and Humber branch of the CBI last night, Ms Barker argued that it would be misguided of the Bank to try to bring about a house price slowdown through interest rate changes.

"My own view remains that it is generally better to respond to changes in asset prices as they occur, rather than seek to impose our views of what price level is 'right'," she said. Halifax will release its April house price index next week.