Property market bounces back

BRITAIN'S property market defied the pessimists in July to register its fastest annual rise in 14 months, according to figures from lender Nationwide.

House prices rose 2.1% on the month and were 20.3% higher than a year ago, the fastest rate of inflation since May 2003 when the market was racing 21.3% higher year-on-year.

The figures are sure to be of concern to Bank of England officials, who are keen to slow down house price inflation gradually. Economists say the monetary policy committee is almost certain to raise the base rate from 4.5% to 4.75% next week.

Today's data was enough to tip some experts into predicting a further hike in September. 'The MPC may move away from its gradualist approach and interest rates could rise further than is currently being anticipated by markets,' said Simon Rubinsohn, chief economist at broker Gerrard. 'We also think that the MPC may now supplement a 25-basis point increase in rates at its August meeting with a further quarter point hike in September.'

The key rate has already been hiked from a low of 3.5% last November, in a bid to cool demand for property.

July's monthly gain was the biggest since since 2.7% in February and brought the average price of a home up 12% so far on the year.

If the month-on-month figure is annualised, it represents yearly growth of 25.2%.

The reacceleration in house price inflation in July brought the average price of a home to £154,299 compared with £151,524 in June.

Last month, the lender said prices rose 0.9%, their slowest monthly rate since January, although prices were still up a hefty 19.1% compared with June 2003.

Nationwide said it would probably put its full-year forecast for 15% house price inflation under review over the next couple of months given that prices are already up 12% on the year.

'Whilst recent anecdotal and survey evidence have suggested the housing market might be starting to slow, our own house price data accords with the recent strength of retail sales and mortgage lending,' said Alex Bannister, Nationwide's Group Economist.

UK mortgage lending hit a record since comparable records began in 1997 last month, according to figures published this week from the British Bankers' Association.

Meanwhile, Bank of England chief economist Charlie Bean warned yesterday that UK house prices are overvalued and there could be a sharp correction but said that equally prices could just stagnate for a while.

Nationwide said regional house price inflation trends remain intact, with the biggest gains in Scotland, the North and Wales. Prices in the South, and in Greater London has seen a modest reacceleration in price gains.

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