Look North for house price boom

A TWO-SPEED housing market will emerge across the country this year to narrow the North-South divide in property prices, it was predicted on Thursday. According to the Halifax, prices in many parts of London and the South will be at a standstill or even falling while substantial increases of 15% and more are expected in parts of the North of England.

Martin Ellis, chief economist at the Halifax, said: 'London has slipped down the regional house price growth league, resulting in a narrowing in the wide gulf between prices in the capital and the rest of the country during the past 12 months. We expect this pattern to continue during 2003.'

His forecasts came as the bank's statistics revealed price rises of more than a quarter last year, taking the average figure up by almost £23,000, or £442 a week. The average cost of a home stood at £121,794 at the end of 2002, an annual increase of 26.4% in the year and the highest annual rate since the boom year of 1988.

The biggest rises were seen in the East Midlands at 42% and the West Midlands at 35.8%. By contrast, London saw a 19.4% increase, Scotland 11.6% and Northern Ireland 5.8%.

The Halifax, which is Britain's biggest mortgage lender, said that first-time buyers were being priced out of the property hunt, which would help pour cold water on the over-heating market. But it insisted - despite gloomy forecasts from City analysts - that there will be no repeat of the bust of the early 1990s. Overall, the bank said it expected an average rise of around 9% in property prices this year.

Ellis said: 'Low interest rates, low unemployment and a persistent shortage of properties available for sale were the main factors creating last year's very buoyant market. The continuation of low interest rates, high levels of employment and the low proportion of earnings taken up by mortgage payments for a new borrower - which stands at 15% - will provide a solid foundation for housing demand over the coming year. Nonetheless, the difficulties that increasing numbers of first-time buyers are facing will curb demand, causing price growth to slow.'

The Halifax is to include properties priced at more than £1m for the first time in its housing market index from now on.