UK falls in property league

The UK slipped down the European house-price inflation table last year as the Bank of England applied the brakes to the long-running property boom.

Having been joint second in 2003, with gains of 15%, the UK had the third-fastest house price inflation in Europe in 2004, with property values rising 12%.

In both years, it shared its position with Ireland. France was in top spot, with 15.5% gains, pinching the lead from Spain. Languishing at the bottom was Greece, where prices fell 4%.

The findings, in a report by the Royal Institution of Chartered Surveyors, also show Britain was the only European country to see a fall in its mortgage market last year. That chimes with recent official data showing home loan demand has collapsed to a 10-year low.

Britain's slide down the table was blamed on higher borrowing costs. UK interest rates rose steadily to 4.75% last year, in contrast with mainland Europe where they have been frozen at 2% since June 2003.

RICS economist Milan Khatri said: 'Low interest rates have been the principal driver of rising house prices in many countries, despite some quite moderate economic performances.

'Any sustained increase in interest rates takes the steam out of the markets, as seen in the UK over the last year. As the only country to have experienced significant interest rate rises in 2004, the UK's slowdown is likely to lower Britain's house price inflation rate even further.'

House prices in France and Spain have also been boosted by a surge in the number of Britons owning a second home in the sun.

Some 177,000 English households have a second home abroad, according to official figures, the vast majority of them in the Mediterranean. Property experts expect the number to keep rising as people see better investment opportunities abroad and low-cost airlines reduce travel times.

Liam Bailey, head of residential research at estate agent Knight Frank, said: 'Particularly in the sun-belt regions, there is no doubt that foreign purchasers have pushed prices higher in France and Spain.'

Outside Europe, the US and Australia have enjoyed housing booms in recent years. Rock-bottom interest rates propelled US house-price inflation to double digits for the first time in 25 years last year. Australia's property market, on the other hand, slowed sharply as its central bank ratcheted up borrowing costs.

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