HBOS predicts house price rises will slow

House prices will continue to rise next year but at a slower rate than this year's 29% increase, the country's biggest mortgage lender forecast yesterday.

HBOS, which includes the Halifax bank, predicted house prices would rise 9% next year, albeit with wide regional variations. Even at this slower rate, the increase will be above the average 7% rise registered since 1983. Admitting that its 5% forecast for this year had been widely inaccurate, HBOS said that London would mark time next year as first-time buyers who fuel the market would continue to be squeezed out by the higher cost of London homes.

The bank said London house prices would still rise by 2% and would be largely unaffected by the reduction in bonuses to City bankers. "It's a myth that needs to be dispelled that this has any influence, apart from at the top end of the of the market," an HBOS spokesman said.

The bank expects next year's hot spots to be in the north-east of England - where prices might rise by up to 16% - and Scotland, where a 12% rise is pencilled in despite an expectation that interest rates will start to rise next year.

The HBOS predictions come amid a series of contradictory forecasts for the housing market. Earlier this week, Capital Economics suggested price increases of 12% in 2003, followed by falls of 5% in 2004, 10% in 2005 and 7% in 2006.

HBOS, which derives two-thirds of its profits from retail banking, made the predictions in its pre-close statement to the City which told analysts and investors performance was in line with their expectations.