House prices to jump again

House prices will rise sharply again next year despite expectations of several interest rate rises in the next few months, mortgage lenders say.

New figures show that average house price inflation in 2000 - at between 8% and 11% - will be slightly lower than this year. But property values will still power ahead of general retail prices and the biggest rises will once again be in the south, widening the north-south divide in property values still further.

While property in some urban areas in the north has been blighted, prices in newly fashionable areas of London have been soaring. Much of the £1.5bn in bonuses paid to City workers over the next two months is likely to be invested in property, driving up prices in some areas to new highs.

Figures published yesterday by the Nationwide building society show that house prices have risen by 1% this month, which is normally a quiet period in the market. The increase brings the average rise in prices to nearly 4% in the last three months alone.

The average UK home is now valued at some £75,219, up from £66,372 a year ago.

David Parry, the society's director of planning, said: "The housing market remained strong in December, shrugging off the usual seasonal slowdown. Part of the reason for the buoyancy has been renewed interest from first-time buyers. An estimated 63,000 joined the market in November, boosting house sales to 141,000, the highest level since September 1997."

The mortgage companies believe the housing market is still far from overheating, as the number of house sales remains well short of the frenzied activity seen in the 1980s, when the number of house sales in a single year peaked at more than 2m. The Nationwide reckons the number of houses bought and sold next year will rise by 7% to 1.58m.

Despite the recent rises, houses remain more "affordable" than at the height of the 1980s boom. Prices nationally are some 3.5 times average earnings. The long-term ratio averages 3.7 and in 1989 it reached a record multiple of 5.

Low interest rates are also making houses more affordable. Over the past 15 years, according the Halifax, mortgage repayments have averaged 24% of gross earnings. Currently they average only 20%.

The building society-turned-bank, which is the country's biggest mortgage lender, publishes its countrywide house price forecasts for 2000 today and is expected to predict an 8% increase in average prices in the coming 12 months. The Nationwide believes prices will rise by 11% next year.

Both forecasts are below the 13% increase in property prices recorded for 1999, but the Halifax says that if it is wrong, it is only likely to have underestimated.

The Halifax believes there will be a slowdown in London, where prices have leaped by more than 25% in some areas this year, but that the south will still see the biggest rises. The Nationwide similarly predicts most of the price rises will be in the home counties belts that benefit from the London ripple effect.

The lenders' surveys are backed up by the British Bankers' Association. It publishes data today which shows that gross mortgage lending totalled £6.7bn in November - up 4% on October and the highest level since July.