Halifax says rocketing house prices unlikely to result in 80s-style bust

House prices are rising at their fastest rate for 10 years, with the average UK home now worth £4,400 more than it was just three months ago.

Prices jumped 2.2% in July, the largest monthly rise since April 1993, said the Halifax yesterday. The cost of a typical property is now 8.2% higher than a year ago.

The strength of the recovery has caught the bank's economists off guard. The Halifax had been saying it expected prices to end 1999 some 6% up on last year, but a spokesman said this figure will "almost certainly be revised upwards". It will be the second time the bank has had to revise its figures - at the start of June it was predicting 4%.

Nationwide Building Society has also repeatedly had to raise its predictions in the wake of the property market's stronger-than-expected surge.

"UK average house prices have risen by 6% in the past three months. This is the fastest rate of increase this decade," said the Halifax. It said the strengthening economy and affordable housing should keep the market healthy for the rest of the year.

The average UK house now sells for £78,443, according to its latest price index. This is £4,412 higher than the £74,031 quoted for April.

"It is a very buoyant market. There has been a huge turnaround in the last few months," said a spokesman.

The Halifax data follows a warning earlier this week from the Ernst & Young ITEM economic forecasting club which said the booming housing market could prompt a rise in interest rates to stave off a repeat of the boom-and-bust cycle of the late 80s.

But the Halifax was keen to stress that prices are rising at a "significantly slower" pace than at the height of the late 80s boom. During the first nine months of 1988, prices rose an average 3% a month. The average home almost doubled in value between 1985 and 1988.

The current boom results from the convergence of a whole range of factors, some of which have taken analysts completely by surprise.

The most obvious development has been the lowest mortgage rates for a generation. Meanwhile, consumer confidence has surged following a downturn at the end of last year. Affordability is high, with the proportion of income needed to finance the typical house purchase currently about 15% compared with 25% or more at the height of the 80s boom.

Price rises in areas such as London have been fuelled by a shortage of decent property, with many people reluctant to put their own home on the market until they have found the property of their dreams.

The Halifax said a return to boom and bust was unlikely because conditions were different now.

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