House prices shoot up

House prices shot up this month by the biggest amount for nearly two years, in the latest sign the property market is in the grip of a new boom.

Figures today from Nationwide, Britain's biggest building society, showed the average price of a home rocketed by 3.1 per cent to £138,730 during a one-month period in January and February, the largest such increase since April 2002.

That pushed the year-on-year rate of increase up to 17.1 per cent, its fastest since July last year. The news backs other recent reports suggesting the market has taken off again after a lull last year. In the last three months prices rose by an average of 1.8 per cent per month compared with one per cent in 2003.

Nationwide said recovery in the City had triggered renewed buying interest in London and the Home Counties. It also played down fears that the market was heading for an early Nineties-style crash.

Alex Bannister, Nationwide's group economist, said: "Despite two interest rate rises in the last four months, confidence in the outlook for housing is once again improving. This acceleration is a little surprising given affordability concerns, but probably reflects buoyant employment and a continued lack of property supply.

"Although the market is set to remain strong in the near term, by the end of 2004 we expect a deceleration in property price growth caused by lower income growth and higher interest rates," he added.

Although prices are rising fastest in the North, improved City bonuses and job prospects are expected to feed through into strong prices rises in London and the South-East in the coming months. Nationwide said inquiries were already picking up.

Unlike much of last year, the price boom is being accompanied by increased sales, with 370,000 approvals over the past three months - a 10-year high. But the number of first-time buyers is at a 30-year low.

Nationwide said the market was not overvalued. It pointed out that mortgage payments would rise to 31 per cent of income if base rates moved to 4.75 per cent from their current four per cent by the end of the year as most experts expect. This is considerably below the 38 per cent peak seen during the late-Eighties boom.