House prices booming again
A NEW house price boom is under way, with figures out today showing a yearly rise of 16%. The surprise survey by Halifax means it is almost certain that loan rates will be raised by the Bank of England tomorrow.
House prices surged 2.2% last month - normally a slow period for the property market - giving a yearly rate of 16%.
Halifax, Britain's biggest mortgage lender, said that the recovering economy, a shortage of sellers and the historically low level of interest rates combined to produce near-perfect conditions for a rising market.
Shane O'Riordain, Halifax general manager of group economics, said that even further increases in interest rates would not put a brake on the market. 'The extent of the rise is, however, expected to be modest and will therefore cause few problems for the majority of homeowners,' he added.
However, the survey flags up problems for key workers such as nurses and firefighters, who are finding it increasingly hard to get on the property ladder throughout the country.
Last month's rise takes the average house price in Britain to £145,610. For first-time buyers, the average price has broken through the £100,000 barrier, about four times the average salary. A year ago the average was £82,968.
After the extraordinary rises over the past five years, many lenders and economists had been expecting to see house prices stagnating or even going into reverse this year.
O'Riordain, however, said all the signs were that the market would continue to rise strongly through this year. He said: 'A strengthening economy should continue to support a strong labour market during 2004.'
Although the City is forecasting that interest rates will rise from the current 3.75% to as high as
4.5% later in the year, there are no signs of a meltdown in the market.
At 4.5%, mortgage payments would still make up only 15% of gross earnings, well below the long-term average of 21%, says Halifax.
Repossessions and mortgage arrears are also running at low levels, in contrast to the negative equity that blighted the property market 15 years ago.
Homebuyers are, however, braced for a rate rise tomorrow after the Chancellor's key aide Ed Balls backed a 'pre-emptive' strike to ward off increases in inflation.
Most economists expect the Bank to raise rates by 0.25% to 4% amid clear signs of economic recovery and higher growth.
Their view was strengthened after the remarks by chief economic adviser Balls to a conference in Leeds. He said: 'There is now a consensus...that a forward-looking and pre-emptive approach to monetary policy, backed by a sound fiscal policy, is the best way to lock in stability.'
Chancellor Gordon Brown and Balls have previously confined themselves to giving the Bank's decisions broad support after they are taken.
