The Nationwide Building Society has confirmed that property prices in the UK raced ahead during 1999.

Across the UK the average price of homes sold rose 12.6% during the year and now stands at £74,638.

But the rate of increase has continued to accelerate, with prices rising at an annual rate of 18.4% in the last three months of the year.

There was also confirmation that London prices have hits levels of increase - 21.5% in 1999 - not seen since the peak of the 1980s housing boom.

Overall, UK house prices are now 19% higher than at their previous peak in 1989 - and are up 49% since their low point in the 1990s.

Prices in London have nearly doubled since their trough in the early 1990s.

The fast rise in property prices is one of the main reasons that the Bank of England is expected to raise interest rates on Thursday.

First time buyers

But Nationwide, the UK's largest mutual mortgage lender, maintained that house price rises were not causing inflationary worries and played down parallels with the 1980s housing boom.

It said house prices rose by 29% in the fourth quarter of 1988, with growth reaching a peak of 32% in the first quarter of 1989.

"At present, the level of mortgage borrowing used for consumer spending remains relatively subdued and thus the inflationary effects from housing are currently relatively weak," it said.

The Bank of England's Monetary Policy Committee mentioned the buoyant housing market when it raised rates in September and November.

Nationwide said two thirds of the annual increase came in the second half of 1999, driven on by an increase in first-time buyers entering the market.

Rippling effect

It said the strength of the housing market would continue through the current year as wages rose and unemployment fell, so boosting consumer confidence.

Nationwide expects house prices to rise on average by 11% in 2000. It also expects the number of house sales to rise 7%.

The prospect of further increases in interest rates could moderate the rise but the impact of a rate rise was unlikely to be significant during the short term.

The regional breakdown showed price growth rippling out to the rest of south east England, where increases were about 15%.

There are only two regions, Yorkshire & Humberside and East Anglia, where house prices remain lower than at their peak in the 1980s.