Nationwide predicts new price surge

Britain's biggest building society today upgraded its forecast for house price inflation this year.

Nationwide now sees property values increasing by 13 per cent rather than the 10 per cent it forecast earlier this year because of rapid price rises in the North.

However, gains in London and the South-East are likely to be much smaller than the national average.

The news came as Nationwide unveiled another punchy increase in house prices in August. The average cost of a home rose by 1.1 per cent to £129,258 following a one per cent increase in July.

However, even bigger price rises this time last year meant the yearon-year rate of increase eased from 17.9 per cent to 16.6 per cent.

The figures show that owning your own home has been nearly twice as profitable as investing in gold during the past three-and-ahalfyears. Nationwide Building Society said the cost of property had increased by 68 per cent since February 2000, while the price of gold had risen by just 35 per cent.

At the same time the value of the FTSE 100 index had fallen by 32.4 per cent.

Alex Bannister, Nationwide's group economist, said: "While this makes housing look a fantastic investment, the current rate of house price inflation is not sustainable."

Mr Bannister said although price growth was set to slow, the current strength in the market was likely to continue for a number of months.

He added that while the cost of property in London and the South-East was likely to increase in line with the five per cent it had predicted, prices in northern regions could have grown by between 20 per cent and 30 per cent by the end of December.

But the group said turnover in the market was relatively subdued during the second quarter of the year, with sales 23 per cent lower than during the same period of 2002.

Mr Bannister said: "We anticipate a slowdown and weak supply of new property but low real mortgage rates, continued economic growth, and poor returns from other asset classes suggest house prices are well supported.

"It will, therefore, remain a significant challenge for first-time buyers to enter the housing market."