Nationwide sees house prices up

HOMEOWNERS received a boost from Britain's biggest building society today, which upgraded its forecast for house-price inflation this year.

Nationwide now sees property values increasing by 13% rather than the 10% it pencilled in earlier this year. It attributed the revision to rapid price rises in northern regions.

House-price inflation in London and the South-East is likely to be much lower than the national average.

The good news came as Nationwide unveiled another punchy increase in property values in August. The average cost of a home rose by 1.1% to £129,258 following a 1% increase in July. However, even bigger price rises this time last year meant the year-on-year rate of increase eased from 17.9% to 16.6%.

The report is likely to reinforce expectations that the Bank of England will hold interest rates at 3.5% when its monetary policy committee meets next week.

Nationwide group economist Alex Bannister said: 'The price of a typical house has increased 8.9% since the beginning of the year. Although house-price growth is set to slow, the strength in the market is likely to be sustained for a number of months and we are revising up our forecast for growth to 13% during 2003.'

The building society's previous forecast of 10%, published at the end of last year, encompassed regional forecasts ranging from 5% in London and the South-East to 15% in the North.

Bannister said: 'While price increases in the

South and Midlands are broadly in line with our forecasts, Northern regions show little sign of slowing and could register increases of up to 30% in the year to December.'

Sales activity has picked up again after the sharp slowdown at the beginning of the year. Some 132,000 homes changed hands in July compared with 103,000 in June, and the number of first-time buyers rose to 35,000 from 30,000. The number of mortgage approvals rose to 108,000 in June, the highest since December last year.

Bannister said: 'This pick-up may be due to reduced fears of a correction in the housing market and lower mortgage rates. However, so far there has only been a modest improvement and we believe house-price growth and sales will slow further.'

Twice as good as gold

PROPERTY has proved a fantastic investment over the past few years, with returns far outstripping other assets. The average price of a home has soared by 67.7% since February 2000. In contrast, gold had increased by 35.4% over the same period, during which time the price of a brick has risen by 13.5% and retail prices have gone up by 8.5%.

A Big Mac now costs 4.7% more than three and a half years ago and a loaf of bread is 3.8% more expensive. Investors pouring their hard-earned cash into the stock market have seen their investment collapse by 32.4%.

However, the current rate of house price inflation is not sustainable and far smaller gains are expected in the future.