Housing boom fuels rate fears

STARTLING new evidence of surging house prices could force a dramatic U-turn this week by Bank of England Governor Sir Edward George. Figures today from property research company Hometrack indicate that prices nationally jumped by 2% this month and are on course to rise 20% during 2002.

They come on the eve of the monthly meeting of the Bank's Monetary Policy Committee, on Wednesday and Thursday, which sets interest rates. Just last week, George - speaking at the Mansion House - played down suggestions that soaring house prices were likely to force a rise in borrowing costs. Any rise, said George, 'depends on a range of other factors, not just on house prices.'

But Hometrack's figures show no sign of a slowdown in the housing market. The rise for June follows a 2.6% increase in May, bringing the year's increase in house prices to 9.8%, making the average property worth £131,500.

John Wriglesworth, Hometrack's housing economist, says rises are being sustained by a combination of factors, including high employment and mortgage rates at a 50-year low. He says excess demand is helping to drive up prices.

But Wriglesworth believes the boom could come to a shuddering halt if there is a sharp increase in rates or Government intervention. 'If rates were to rise quickly from 4% to 6%, many homeowners would see monthly mortgage costs jump by 40%,' he said. 'It would put a strong cap on demand and cause house prices to correct.'

Last week, mortgage lenders called for an increase in rates to head off a housing market collapse. This followed the release of figures showing that lending for new homes soared to a record £19.5bn in May.

Hometrack's survey shows:

The counties that reported biggest rises in house prices this month were Cornwall (3.1%), Teesside (three%), Derbyshire (three%) and East Sussex (2.6%).
The counties with the lowest increases were South Yorkshire (0.6%), Oxfordshire (1.2%), Merseyside (1.2%) and Greater Manchester (1.3%).
Cities that recorded the biggest price rises were Chester (4.6%), Derby (four%) and Newport (4.2%).
Blackpool recorded an increase of only 0.2% while prices in Oxford and Sheffield were static.

MOVES aimed at protecting homebuyers from rogue estate agents are to be unveiled this week. The Royal Institution of Chartered Surveyors (RICS), one of two main bodies representing estate agents, will say that it wants to force its members to sign up to the ombudsman complaints scheme, giving buyers and sellers of houses the right to compensation if they are badly treated.

RICS is negotiating closer links with the industry's bigger organisation, the National Association of Estate Agents. If the tie-up goes ahead, the combined membership, accounting for three quarters of the 12,000 UK estate agents, would be forced to belong to the ombudsman scheme, which at the moment is voluntary. At a stroke, this would double the number of estate agents who belong to it.

The ombudsman scheme is free for consumers and can award up to £25,000 in compensation.