Fastest ever rise in house prices

House prices are rising at the fastest rate since records began, the Halifax said yesterday as it revealed that the average home in Britain has jumped in value to £122,400, an increase of more than £5,000 in October alone.

During the month prices rose on average 4.7%, taking the annual rate of house price inflation to 30.6%, matching figures not seen since the peak of the 1980s housing boom.

The surge in prices is believed to be one reason why the Bank of England decided against a cut in interest rates on Thursday. Halifax said it had given members of the Bank's monetary policy committee early sight of the figures.

The price boom is now focused on the north, although prices continue to rise in London and the south-east. Yesterday Halifax predicted a slowdown in the pace of rises, but ruled out a crash similar to the early 1990s.

"The overriding factors are historically low mortgage rates and low unemployment. Any setback in the market would require big rises in either and there are no signs of that," said Halifax's chief economist, Martin Ellis.

Despite galloping price inflation, Halifax said that the typical mortgage takes up just 15% of household gross earnings, compared with the long-term average of 22%, and only half the 30% level it reached in the late 1980s.

But there are signs of growing uneasiness among first-time buyers, who are stretching traditional lending rules to the limit to afford the first step on the housing ladder. The average house price now stands at 4.6 times average earnings, just below its 1980s peak, and many are struggling to find deposits of 5-10% on their first homes. The problem is particularly severe for public sector workers in London, where the average property price is now touching £250,000.

Halifax said the average price paid by first-time buyers increased by a relatively modest 1.5% in October, compared with the 7.8% rise in the price paid by existing owner occupiers moving home.

However, there is widespread confusion over house price figures, with a proliferating number of indices giving contradictory messages.

Nationwide said last week that prices rose only 1.4% last month, the smallest rise for seven months. The Land Registry - which is widely regarded as providing the most accurate data - said on Thursday that the annual rise was 18% rather than 30%. However, Land Registry figures are based on completed purchases rather than mortgage approvals, and therefore tend to lag behind the data from the leading major lenders.

The government hopes to tackle the shortcomings of the current surveys by publishing an official monthly index from next summer. It aims to be more sophisticated than existing price indices, with the advent of electronic conveyancing allowing it to collect more detailed figures.

The rise in prices is also expected to encourage a fresh wave of equity withdrawal. Barclays said yesterday that price rises pushed the value of Britain's private housing stock to £2.2 trillion at the end of October, compared with the £1.2 trillion value of the stock market.

The losses that households have sustained from their stock market investments - such as pensions and Isas - have been offset by the housing boom.